OF  Th 
UNIVERS*- 
OF 


EXAMPLES  OF  PRIVATE  GOLD  COINS  IN  CIRCULATION 

BETWEEN    1830    AND    l86o. 


See  page  42 


MONEY  AND  BANKING 


ILLUSTRATED   BY 

AMERICAN    HISTORY 


BY 


HORACE    WHITE 


BOSTON,  U.S.A.,  AND  LONDON 

PUBLISHED    BY   GINN   &    COMPANY 

1896 


1&.I 


COPYRIGHT,  1895, 
BY    HORACE    WHITE 

ALL  RIGHTS  RESERVED 


GIFT 


PREFACE. 


ON  the  25th  of  February,  1862,  the  Government  of  the 
United  States  made  its  paper  evidences  of  debt  legal  tender 
between  individuals.  The  nation  was  thus  sent  upon  the 
wrong  road,  and  has  been  toiling  in  a  wilderness  ever  since. 
In  addition  to  the  injustice  which  it  wrought,  the  legal-tender 
act  filled  the  public  mind  with  misconceptions  and  delusions 
on  the  subject  of  money.  So  it  came  to  pass  that  although 
we  adopted  irredeemable  paper  with  the  greatest  reluctance, 
we  were  willing  to  flounder  in  it  fourteen  years  after  the 
supposed  necessity  for  it  had  passed  away.  Then,  partly  by 
design,  partly  by  chance,  we  resumed  specie  payments ;  but 
the  people  had,  to  a  large  extent,  lost  sight  of  the  fundamen- 
tal principles  of  money.  The  misconceptions  and  delusions 
remained,  the  most  dangerous  and  widely  prevalent  being 
the  notion  that  mere  quantity  is  a  desirable  thing,  and  that 
the  Government  can  .produce  quantity  and  ought  to. 

It  is  the  aim  of  this  work  to  recall  attention  to  first  prin- 
ciples. For  this  purpose  it  has  been  deemed  best  to  begin 
at  the  beginning  of  civilized  life  on  this  continent  and  to 
treat  the  subject  historically.  The  science  of  money  is 
much  in  need  of  something  to  enliven  it.  If  anything  can 
make  it  attractive  it  must  be  the  story  of  the  struggles  of 
our  ancestors  with  the  same  problems  that  vex  us.  The 
reader  will  find  an  abundance  of  these  in  the  following 
pages.  Indeed,  a  complete  and  correct  theory  of  money 

M623255 


iv  PREFACE, 

might  be  constructed  from  events  and  experiences  that  have 
taken  place  on  the  American  continent,  even  if  we  had  no 
other  sources  of  knowledge.  This  may  be  said  of  the 
science  of  banking  also.  All  the  wisdom  and  all  the  folly 
of  the  ages,  as  to  these  two  related  subjects,  have  been 
exploited  on  our  shores  within  the  space  of  less  than  three 
hundred  years. 

Very  few  persons,  if  any,  are  satisfied  with  our  present 
monetary  condition.  While  I  write  these  lines  a  withdrawal 
of  $2,350,000  gold  from  the  Treasury  causes  a  fresh  tremor 
and  confusion  of  tongues.  Everybody  assures  everybody 
else,  and  tries  to  assure  himself,  that  it  is  of  no  consequence. 
Probably  no  harm  will  come  of  it,  but  why  should  it  be 
noticed  at  all,  except  by  a  few  dealers  in  foreign  exchange  ? 
Because  the  public  Treasury  undertakes  to  maintain  the 
ultimate  gold  reserve  of  the  country,  and  because  people 
doubt  whether  it  can  do  so  at  all  times.  Are  these  doubts 
unreasonable  ?  The  only  law  on  the  statute  book  really 
effective  for  the  discharge  of  this  obligation  was  passed  in 
1862  for  a  different  emergency,  had  been  forgotten  a  quar- 
ter of  a  century,  and  was  discovered  by  accident  the  last 
day  in  the  afternoon.  As  regards  the  act  of  1875  (under 
which  gold  was  twice  procured  last  year  for  the  replenish- 
ment of  the  Treasury)  it  is  a  matter  of  dispute  whether  it  is 
still  in  force,  or  whether  it  lapsed  when  specie  payments 
were  resumed.  A  dispute  on  such  a  question  is  itself  an 
incentive  to  panic.  Moreover,  everything  depends  upon  the 
mood  and  temper  of  the  Administration  for  the  time  being 
whether  such  powers  as  the  law  confers  shall  be  exercised 
wisely  and  promptly,  or  exercised  at  all. 

Now  suppose  that  the  Government  were  out  of  the  bank- 
ing business  altogether,  its  fiat  money  retired,  and  the 
Treasury  restricted  to  its  normal  and  proper  business  of 
collecting  and  disbursing  the  public  revenue.  In  that  case 


PREFACE.  v 

the  duty  of  redeeming  the  paper  circulation,  and  maintain- 
ing a  sufficient  gold  reserve  for  the  purpose,  would  devolve 
on  the  banks,  and  would  be  discharged  automatically.  The 
banks  would  learn  by  experience  how  large  a  reserve  is 
required  generally.  In  emergencies,  when,  for  any  reason, 
more  should  be  required,  they  would  obtain  the  means  from 
their  maturing  bills  receivable.  This  would  come  to  them 
either  in  the  shape  of  their  own  circulating  notes,  thus 
lessening  the  call  upon  them  for  gold,  or  in  gold  itself,  which 
the  mercantile  community  would  be  obliged  to  procure  and 
send  in  to  them.  Of  course  this  implies  a  curtailment  of 
discounts,  but  curtailment  is  not  avoided  under  the  present 
system.  The  curtailment  in  the  panic  of  1893  was  as 
severe  as  it  could  ever  be  if  the  banks  were  solely  responsible 
for  the  redemption  of  the  paper  circulation.  But  probably 
there  would  have  been  no  panic  at  all  at  that  time  if  the 
Government  had  been  restricted  to  its  proper  business,  and 
had  not  been  issuing  fiat  money  in  large  quantities. 

It  is  thus  apparent  that  the  first  step  toward  a  rational 
system  is  the  retirement  and  cancellation  of  the  legal  tender 
notes  and  the  restriction  of  the  Treasury  to  the  duties  for 
which  it  was  originally  and  solely  designed.  When  this  is 
done  the  public  mind  will  be  so  cleared  that  other  reforms, 
and  especially  banking  reform,  may  be  hopefully  undertaken. 

Although  banking  is  here  treated  historically,  this  volume 
must  not  be  taken  as  a  history  of  banking.  I  have  merely 
selected  such  parts  as  serve  to  illustrate  the  principles  of  the 
science,  to  show  what  should  be  striven  for  and  what  avoided. 
The  work  of  John  Jay  Knox,  published  after  his  death  in 
Rhodes'  Journal  of  Banking,  was  left  in  an  unfinished  state. 
If  his  life  had  been  spared  to  give  it  the  completeness  and 
finish  of  his  lesser  work  on  "United  States  Notes"  there 
would  have  been  little  left  to  be  desired.  Under  the  cir- 
cumstances there  is  still  room  for  such  a  work,  which  should 


vi  PREFACE. 

be  a  coordination  of  facts  and  principles  showing  the  move- 
ment of  ideas.1 

My  opinion  is  that  the  Scotch  bank  system  is  the  best  in 
the  world  and  that  we  might  borrow  from  it,  as  the  Cana- 
dians have  done,  to  our  advantage.  There  are  only  ten  banks 
in  Scotland,  but  they  have  nearly  one  thousand  branches, 
reaching  every  hamlet  in  the  nation.  Deposits  are  received 
and  loans  are  made  at  each  branch,  but  the  branches  pay 
out  only  the  notes  of  the  bank,  which  are  redeemable  at  the 
head  office.  So  it  is  necessary  to  have  real  money  only  in 
one  place  instead  of  perhaps  one  hundred  different  places. 
At  the  branches  the  bank's  circulating  notes  answer  the 
purposes  of  retail  trade,  while  checks  drawn  against  deposits 
answer  all  other  purposes.  Thus  the  maximum  of  business 
is  done  with  the  minimum  of  capital,  which  is  the  ration 
d'etre  of  banking.  In  other  words,  credit  has  been  system- 
atized in  Scotland  to  the  last  degree,  and  is  found  to  answer 
all  purposes  so  long  as  the  paper  sovereign  can  be  converted 
into  the  gold  sovereign  at  some  convenient  commercial 
center,  at  the  pleasure  of  the  holder. 

I  have  been  writing  on  these  subjects  in  lectures  and 
magazines  several  years.  Thus  the  greater  part  of  the 
chapters  on  the  Gold  Standard  was  published  in  a  pamphlet 
in  1893,  but  it  has  been  rewritten  and  important  additions 
made.  There  may  be  some  other  passages  that  the  reader 
has  seen  before,  but  the  text  is  my  own  except  where  credit 
is  given  to  others. 

H.  W., 
NEW  YORK,  August,  1895. 

1  Since  this  preface  was  written  the  announcement  has  been  made 
that  Knox's  History  of  Banking  in  the  U.  S.  will  soon  be  published  as 
a  book,  with  important  additions  and  revision. 


TABLE  OF  CONTENTS. 


PART  I.  — MONEY. 


BOOK  I. 
EVOLUTION  OF  MONEY. 

CHAPTER  PAGE 

I.   MONEY  A  COMMODITY 3 

II.   GENERAL  PRINCIPLES 23 

III.  COINAGE .29 

IV.  LEGAL  TENDER 38 


BOOK  II. 
THE  GOLD  STANDARD. 

I.  EXPERIENCE  OF  ENGLAND  AND  THE  UNITED  STATES    .  44 

II.   EXPERIENCE  OF  GERMANY  AND  FRANCE     ...  55 

III.  HOLLAND,  AUSTRIA,  AND  INDIA 67 

IV.  THE  BRUSSELS  MONETARY  CONFERENCE     ...  76 
V.   GENERAL  CONCLUSIONS 105 


PART   II.  —  REPRESENTATIVE   MONEY. 


BOOK  I. 
FIAT  MONEY. 

I.   GENERAL  CHARACTERISTICS          .....         117 
II.   COLONIAL  PAPER  MONEY  .        .120 


viii  TABLE  OF  CONTENTS, 

CHAPTER                                                       -  PAGE 

III.  CONTINENTAL  MONEY         .        .        .        .      .  .        .  134 

IV.  THE  GREENBACKS 148 

V.  CONFEDERATE  CURRENCY 166 

VI.  THE  GOLD  ROOM 174 

VII.  AFTER  THE  WAR            191 

VIII.  SILVER  DOLLARS 198 

IX.  THE  "CRIME  OF  1873" 2I3 

X.  GENERAL  CONCLUSIONS      .        .        .        .        .        .  224 


BOOK  II. 
BANES. 

I.   FUNCTIONS  OF  A  BANK 235 

II.   THE  CLEARING  HOUSE  SYSTEM         ....  239 

III.  COLONIAL  BANKING 248 

IV.  FIRST  BANK  OF  THE  UNITED  STATES       .        .        .  258 
V.   SECOND  BANK  OF  THE  UNITED  STATES       .        .        .271 

VI.  THE  BANK  WAR 287 

VII.  END  OF  THE  GREAT  BANK            298 

VIII.   BANKING  DEVELOPMENT  IN  MASSACHUSETTS           .  313 

IX.   THE  SUFFOLK  BANK  SYSTEM 324 

X.   BANKING  DEVELOPMENT  IN  NEW  YORK          .        .  333 

XI.   THE  SAFETY  FUND  SYSTEM 339 

XII.   THE  FREE  BANK  SYSTEM .348 

XIII.  ECCENTRICITIES  OF  BANKING 361 

XIV.  SOME  NOTABLE  BANKS 374 

XV.   BANKING  IN  THE  FIFTIES 397 

XVI.   THE  NATIONAL  BANKING  SYSTEM             .        .        .  406 

XVII.   THE  QUANTITY  THEORY 419 

XVIII.   THE  MECHANISM  OF  EXCHANGE       ....  427 

XIX.   CONCLUSION 436 


TABLE  OF  CONTENTS. 


APPENDIX  A. 

PAGE 

RECENT  BIMETALLIST  MOVEMENTS  IN  GERMANY  .        .        .         447 


APPENDIX    B. 
MR.  SHAW'S  HISTORY  OF  CURRENCY 453 

APPENDIX   C. 
MARKET  RATIO  OF  SILVER  TO  GOLD,  1793-1895  456 

APPENDIX  D. 
SILVER  COINAGE  OF  THE  UNITED  STATES          ....     457 

APPENDIX   E. 
THE  BALTIMORE  PLAN 458 

APPENDIX    F. 
SECRETARY  CARLISLE'S  PLAN 461 

APPENDIX  G. 
GOLD  VALUE   OF   GREENBACKS    DURING   THE   SUSPENSION  OF 

SPECIE  PAYMENTS       ........     465 

APPENDIX  H. 
THE  GRESHAM  LAW 466 


BIBLIOGRAPHY ...     469 

INDEX .        .         479 


x  TABLE  OF  CONTENTS. 

ILLUSTRATIONS. 

PAGE 

EXAMPLES   OF  PRIVATE  GOLD  COINS  IN  CIRCULATION 

BETWEEN  1830  AND  1860         ....          Frontispiece 
SPECIMENS  OF  FOREIGN  SILVER  COINS  CIRCULATING  IN 

THE  UNITED  STATES  BEFORE  1860        .        .        .  To  face  37 

COLONIAL  BILLS  OF  CREDIT         .        .        .        .        .  "    "  128 

CONTINENTAL  CURRENCY "    "  142 

INTERIOR  OF  THE  NEW  YORK  CLEARING  HOUSE       .  "    "  240 


PART    I. 


MONEY. 


BOOK    I. 

EVOLUTION    OF   MONEY. 


CHAPTER    I. 

MONEY    A    COMMODITY. 

EXCHANGE  is  the  indispensable  condition  of  civilized  life. 
The  vital  principle  of  exchange  is  equality  of  value  in  the 
things  exchanged.  In  order  that  there  may  be  equality  of 
value  there  must  be  a  measure  of  value. 

Money  is  anything  that  serves  as  a  common 

Money  indispen-  medium  of   exchange  and  measure  of  value. 

sable  to  Civilized   _ 

Life>  It  need  not  be  a  good  measure  ;  it  is  only 

necessary  that  it  should  be  the  agreed  measure 
of  any  time,  place,  or  people.  We  are  now  speaking  of  real 
money,  not  of  its  representatives  or  substitutes. 

The  earliest  money  of  the  Greeks  and  Romans  consisted 
of  cattle  (pecus),  whence  came  the  Latin  word  pecunia  and 
the  English  words  pecuniary,  peculation  (cattle  lifting),  and 
peculiar  (one's  own).  The  first  metallic  money  of  the 

Romans  was  copper  (aes],  whence  came  the 

First  Money  in      Latin  word  aestimatio  and  the  English  words 

the  Historical 

Period.  esteem,  estimation,  estimable,  all  having  reference 

to  the  mental  operation  of  valuing  or  appraise- 
ment.    The  word  specie  is  the  same  as  species,  with  the 
final  j-  omitted.     Payment  in  specie  was  originally  payment 
'  in  kind.    Silver  was  used  as  money  in  the  time  of  Abraham, 
when  it  passed  by  weight. 


4  MONEY, 

Among  the  things  used  as  money  by  various  people  within 
the  historical  period,  are  cattle,  cacao  beans,  salt,  silk,  furs, 
tobacco,  dried  fish,  wheat,  rice,  olive  oil,  cocoanut  oil,  cotton 
cloth,  cowry  shells,  iron,  copper,  platinum,  nickel,  silver,  and 
gold.  It  would  be  difficult  to  say  what  had  not  been  used 
as  money  at  some  time  or  place.  Our  own  history  furnishes 
an  abundance  of  curious  examples,  the  most 
ooione  ^  instructive  being  the  tobacco  currency  of  the 
colonial  period.  It  may  be  said  that  Virginia 
grew  her  own  money  for  nearly  two  centuries  and  Maryland 
for  a  century  and  a  half.  Hardly  any  form  of  currency 
could  have  been  worse,  the  fluctuations  in  its  value  being 
extreme  and  incessant,  and  the  social  disorders  produced 
by  it  enormous. 

The  first  law  passed  by  the  first  General  Assembly  of  Vir- 
ginia, July  31,  I6I9,1  was  in  reference  to  tobacco.  It  fixed  the 
price  of  that  staple  "  at  three  shillings  the  beste  and  the 
second  sorte  at  i8^/.  the  pounde,"  and  required  Mr.  Abraham 
Persey,  "  Cape  Marchant,"  to  take  notice 
thereof-  The  CaPe  Marchant  was  the  keeper 
of  the  Virginia  Company's  "  Magazin "  or 
storehouse.  He  dealt  out  the  supplies  and  received  the 
tobacco.  This  was  really  fixing  the  price  of  the  company's 

1  This  was  the  absolute  beginning  of  representative  government  in 
America.  The  organization  was  effected  in  the  following  manner: 
"  The  most  convenient  place  we  could  find  to  sitt  in  was  the  Quire  of 
the  Churche  where  Sir  George  Yeardly,  the  Governor,  being  sette 

downe  in  his  accustomed  place  those  of  the  Counsel  of 
First  Represen-  Estate  sate  nexte  him  on  both  handes,  excepte  onely  the 
tative  Gwern-  Secretary  then  appointed  Speaker  who  sate  right 
jca  before  him."  After  prayers  "  all  the  Burgesses  were 

intreatted  to  retire  themselves  into  the  body  of  the 
Churche,  w'ch  being  done,  before  they  were  fully  admitted  they 
were  called  to  order  &  by  name  &  so  every  man  (none  staggering  at  it) 
took  the  oath  of  supremacy  &  then  entered  the  Assembly." 


MONEY  A    COMMODITY,  5 

goods,  and  some  doubt  arose  in  the  minds  of  these  newly 
fledged  legislators  whether  their  powers  extended  so  far. 
They  accordingly  consulted  the  "  Cape  Marchant "  before 
putting  the  law  into  effect  and  it  was  agreed  to  enact  it 
provisionally,  and  to  refer  the  matter  to  London,  where  it 
was  ratified  in  due  time. 

Prior  to  this,  the  will  of  the  Governor,  who  was  the  com- 
pany's appointee,  had  been  the  law  of  the  colony.  He 
directed  what  crops  should  be  cultivated  and  what  work  each 
man  should  do,  and  what  rations  should  be  served  out  of 
the  "  Magazin."  The  historian,  Berkeley,  writing  of  the 
year  1616,  says:  "  Captain  Yeardly  made  but  a  very  ill 
Governor,  he  let  the  building  and  forts  go  to  ruin,  not 
regarding  the  security  of  the  people  against  the  Indians, 
neglecting  the  corn  and  applying  all  hands  to  plant  tobacco, 
which  promised  most  immediate  gain." 

On  the  23d  of  December,  1619,  there  was  a  public  sale 

of  tobacco  in  London  at  which  20  shillings  per  pound  was 

paid  for  the  finer  qualities  of  Spanish.     This  was  in  spite 

of  the  "  counterblast "  of  King  James  I.,  who 

High  Price  in      wag  stm  Qn  the  throne  and  who  had  Hkened 

loIV. 

the  smoke  of  this  plant  to  that  of  the  Stygian 
pit,  and  had  declared  that  it  was  fit  only  to  regale  the  devil 
after  dinner.  The  price  of  Virginia  tobacco  was  never 
above  5  shillings  per  pound  in  London. 

The  germ  of  the  long  series  of  tobacco  inspection  laws  is 
found  in  another  act  passed  at  this  first  session.  In  order 
to  "inforce"  the  growers  "thoroughly  and  loyally  to  aire 
their  tobacco  before  they  bring  it  to  the  Magazin,"  it  was 

provided  that  it  should  be  inspected  by  two 
Standard?  ^  persons  to  be  chosen  by  the  Cape  Marchant 

and  two  chosen  by  the  inhabitants  of  the  planta- 
tion or  district,  and  "  if  not  vendible  at  the  second  price  it 
shall  there  immediately  be  burnt  before  the  owner's  face." 


6  MONEY. 

Tobacco  was  already  the  local  currency.  One  of  the 
petitions  addressed  to  the  company  by  this  body  asked 
that  a  sub-Treasurer  be  sent  to  the  colony  to  receive  the 
rents  and  that  he  be  instructed  not  to  exact  money  "  whereof 
we  have  none  at  all,"  but  to  collect  "  the  true  value  of  the 
rent  in  commodity." 

The  next  mention  of  tobacco  in  the  Statutes  was  in  1623, 
when  it  was  enacted  that  any  person  who  should  be  absent 
from  divine  service  on  Sunday  should  be  fined  one  pound  of 
tobacco. 

An  act  passed  in  1633  recited  in  its  preamble  that  it  had 
been  the  usual  custom  of  merchants  to  make  all  bargains 
and  contracts  and  keep  all  accounts  in  tobacco, 
Legislation  which  had  occasioned  trouble  and  inconven- 
ience, in  consequence  of  which  it  was  enacted 
that  such  trading  and  keeping  of  accounts  should  thereafter 
be  in  money  and  not  in  tobacco.  The  word  money,  as  used 
in  the  colonies,  always  meant  metallic  money. 

This  good  resolution  did  not  last  long,  or  perhaps  could 

not  be  enforced,  for  we  find  another  act  passed  in  1642 

completely  reversing  this  policy  and  in  effect  making  tobacco 

the  sole  legal  tender.1     The  act  of  1642  was 

Tender-0  ^^       repealed  in  1 656,  after  which  contracts  in  silver 

or  in  tobacco  were  alike  enforceable  at  law, 

except  in  a  few  instances,  but  nearly  all  the  trading  in  the 

province  was  done  with  tobacco  as  the, medium  of  exchange. 

1  Act  XXXVII.  "  Whereas  manie  and  great  inconveniences  do 
dayly  arise  by  dealing  for  monie.  Be  it  enacted  and  confirmed  by  the 
authoritie  of  this  present  Grand  Assembly  that  all  money  debts  made 
since  the  26th  day  of  March,  or  hereafter  shall  be  made,  shall  not  be 
pleadable  or  recoverable  in  any  court  of  justice  under  this  government, 
and  that  a  coppie  of  this  act  be  by  the  Capt.  of  the  ffort  or  his  deputy 
be  fixed  on  the  mastes  of  all  shipps  upon  their  arrival  within  the 
government,  to  the  intent  that  all  people  whatsoever  might  take  notice 
hereof."  Hening  I,  262. 


The    r.l- 


MONEY  A    COMMODITY. 


The  church  tithes  were  payable  in  tobacco,  and  were 
made  the  first  lien  on  the  crop.  A  law  of  1623  provided 
that  no  planter  should  dispose  of  his  crop  till  the  minister 
was  satisfied. 

In  1628  the  price  of  tobacco  reckoned  in  English  money 
was  3-r.  6d.  per  Ib.  in  Virginia  and  4^.  in  London.  In  the 
following  year  we  find  evidence  of  a  decline  in  the  price. 
It  was  sought  to  counteract  this  by  limiting  the  supply  and 
improving  the  quality.  A.  law  was  enacted  providing  that 
no  person  should  plant  or  tend  above  2,000  plants  for  each 
member  of  his  family  and  that  nobody  should 
"  pay  away  "  any  bad  or  ill-conditioned  tobacco 
for  debts  or  merchandise  under  penalty  of 
having  the  same  seized  and  burned.  In  1631  the  price  had 
fallen  to  6d.  per  Ib.  Notwithstanding  this  heavy  decline  the 
cultivation  increased  rapidly.  In  1632  a  law  was  passed 
requiring  every  farmer  to  plant  and  tend  at  least  two  acres 
of  corn  for  each  member  of  his  family,  under  penalty  of 
losing  his  right  to  plant  tobacco. 

The  decline  in  price  continued,  and  energetic  measures 
were  taken  to  stop  it.  Five  storehouses 1  were  appointed  to 
receive  all  the  tobacco  grown  in  the  colony.  Planters  were 

1  In  a  law  passed  in  1712  these  storehouses  were  called  "rolling 
houses,"  and  the  roads  were  called  "  rolling  roads."  This  phrase  came 
from  the  customary  method  of  transporting  tobacco  by  rolling  the 

casks  along  the  public  highway.  Mr.  R.  A.  Brock 
Tr'a^porta-  (History  of  Tobacco  in  the  Tenth  U.  S.  Census) 

tjon  describes  this  process.  Wooden  spikes  were  driven 

into  the  heads  of  the  cask,  and  shafts  like  those  of  a 
buggy  were  attached  to  them,  so  that  when  the  horse  drew  on  them  the 
cask  would  roll  along  the' road.  A  box  laid  across  the  shafts  carried  the 
provisions  and  tools  of  the  driver.  "  The  tobacco-roller,  as  the  driver 
(usually  the  owner)  was  called,  never  sought  shelter  on  his  journey  — 
often  of  a  week's  duration  —  but  camped  at  night  by  the  roadside." 
Hening  says  that  rolling  was  still  practiced  in  1814. 


8  MONEY. 

required  to  bring  hither  their  entire  crop  (except  a  small 
amount  allowed  for  family  use),  before  the  last  day  of 
December  in  each  year,  to  be  inspected  and  stored.  All 

payments  of  debts  were  to  be  made  at  the 
And  Deprecia-  stores  with  the  privity  and  in  the  presence  of 
Currency.  the  store-keepers.  The  right  to  cultivate  was 

restricted  to  1,500  plants  per  poll.  Rights  of 
planting  could  not  be  transferred.  Gunsmiths,  nailers,  brick- 
makers,  carpenters,  joiners,  sawyers,  and  turners  were  not 
allowed  to  plant  tobacco,  "or  do  any  other  work  in  the 
ground,"  but  the  county  commissioners  were  to  see  "  that 
they  have  good  payment  made  unto  them  for  their  work,  out 
of  the  stores,  as  soon  as  the  tobacco  is  brought  thither."  No 
tobacco  could  be  sold  at  less  than  6d.  per  Ib.  "  as  first  cost  in 
England." 

These  measures  were  ineffective.  The  price  continued  to 
fall.  In  1639  it  was  only  3^.  It  was  now  enacted  that  half 
of  the  good  and  all  of  the  bad  should  be  destroyed,  and  that 
thereafter  all  creditors  should  accept  40  Ibs.  for  100;  that 

the  crop  of  1640  should  not  be  sold  for  less 

Attempts  to         than  i2d.,  and  that  in  1641  for  less  than  2s.  per 

stop  it  by  Law 

ineffective.          lt>.,  under  penalty  of  forfeiture  of  the  whole 

crop.  This  law  was  as  ineffectual  as  the  pre- 
vious ones  had  been,  but  it  caused  much  injustice  between 
debtors  and  creditors.  In  1645  tobacco  was  worth  only 
\Y<zd,  and  in  1665  only  id.  per  Ib.  This  ought  to  have  been 
sufficiently  favorable  to  debtors,  but  it  was  not  so  considered. 
A  law  was  now  passed  allowing  them  to  pay  their  debts  in 
wheat,  or  tobacco,  or  silver,  three  shillings  being  reckoned 
as  the  equivalent  of  one  bushel  of  the  former  commodity,  or 
30  Ibs.  of  the  latter.  This  law  was  not  retroactive.  Hereto- 
fore contracts  in  silver  or  in  tobacco  had  been  enforceable 
according  to  their  terms.  The  law  of  1645  was  repealed  the 
following  year. 


MONEY  A    COMMODITY.  9 

As  creditors,  who  had  tobacco  debts  due  them,  frequently 

postponed  the  payment,  on  one  pretext  or  another,  in  order 

to  take  the  chance  of  a  rise  in  the  price,  an  act  was  passed 

in  1666  to  determine  what  should  be  a  legal  tender  of  tobacco. 

Notice  of  intended  payment  must  be  delivered 

How  a  Tender       to  the  payee  or  his  agent,  after  which  he  could 
of  Tobacco  was  ,  -  ,•        f    , 

made.  make  no  objection  except  to  the  quality  of  the 

tobacco,  in  which  case  the  justice  of  the  county 
should  appoint  two  inspectors  who  should  act  under  oath 
and  select  a  third  as  an  umpire  in  case  of  a  disagreement, 
and  their  decision  should  be  final.  It  was  provided  in  a 
later  act  that  if  the  creditor  was  not  present  the  debtor  should 
be  discharged  of  his  obligation,  but  should  take  care  of  the 
tobacco  as  though  it  were  his  own. 

In  the    same    year  a  treaty  was  negotiated  and  ratified 

between  the  colonies  of  Maryland,  Virginia,  and  Carolina  to 

stop  planting  tobacco  for  one  year.     The  preamble  recites 

that  "the  quantity  of  tobacco  made  in  this  country  has  become 

so  great  that  all  markets  have  been  glutted 


Planting  with  ft  an(j  the  value  is  so  low  that  the  planter 

stopped  for  .  .  ... 

One  Year.  i§   rendered    incapable  of   subsisting."     This 

temporary  suspension  of  planting  made  neces- 
sary some  other  mode  of  paying  debts.  It  was  accordingly 
enacted  that  both  public  dues,  and  private  debts  falling  due 
"  in  the  vacant  year  from  planting  "  might  be  paid  in  country 
produce  at  specified  rates. 

In  1683  an  extraordinary  series  of  occurrences  grew  out 
of  the  low  price  of  tobacco.  Many  people  signed  petitions 
for  a  cessation  of  planting  for  one  year.  As  the  request  was 
not  granted  they  banded  themselves  together  and  went 

through  the  country  destroying  tobacco  plants 
in  1683°  wherever  found.  The  evil  reached  such  pro- 

portions that  in  April,  1684,  the  Assembly 
passed  a  law  declaring  that  these  malefactors  had  passed 


10  MONEY. 

beyond  the  bounds  of  riot,  and  that  their  aim  was  the  sub- 
version of  the  government.  It  was  enacted  that  if  any 
persons  to  the  number  of  eight  or  more  should  go  about 
destroying  tobacco  plants  they  should  be  adjudged  traitors 
and  suffer  death. 

In  1727  tobacco  notes  were  legalized.  These  were  in  the 
nature  of  certificates  of  deposit  issued  by  the  inspectors. 
They  were  declared  by  law  current  and  payable  for  all  tobacco 
debts  within  the  warehouse  district  where  they  were  issued. 
In  1730  the  notes  were  made  the  only  legal 
tender  for  tobacco  debts,  in  the  warehouse 
district.  They  were  redeemable  in  tobacco 
of  a  particular  grade,  but  not  in  any  specified  lots  —  resem- 
bling in  this  respect  the  grain  warehouse  receipts  of  the 
present  day.  Counterfeiting  the  notes  was  made  a  felony. 
In  1734  another  variety  of  currency  called  "  crop  notes" 
was  introduced.  These  were  issued  for  particular  casks 
of  tobacco,  each  cask  being  branded  and  the  marks  specified 
on  the  notes. 

In  1742  it  was  enacted  that  persons  not  growing  tobacco 
might   pay  taxes   and  fees   to   public    officers  "  in  current 
money  at  such  prices  and  rates  for  tobacco  as  shall  be  settled 
by  the  courts  of   their  respective  counties." 
Fluctu-    jn   j^tjjj   and  again  in   1758,  in  consequence 


of  severe  drought  and  short  crops,  it  was 
enacted  that  all  tobacco  debts,  taxes,  and  fees  might  be  paid 
in  money  at  i6s.  %d.  per  100  Ibs. 

During  the  revolutionary  war  the  currency  of  Virginia,  bad 
enough  in  its  normal  state,  fell  into  terrible  confusion.     It 

consisted    of   continental    currency,    Virginia 

tftLe  Curancy    bills  of  credit  (both  depreciating  at  a  gallop- 

ing pace)  and  tobacco.     The  latter  had  be- 

come a  stable  currency  by  comparison.     Its  value  was  fixed 

from  time  to  time  by  the  grand  jury.     After  the  revolution 


MONEY  A  COMMODITY.  11 

the  old  system  of  payment  by  tobacco  notes  was  resumed 
and  continued  until  near  the  beginning  of  the  present 
century. 

The  history  of  tobacco  currency  in  Maryland  is  in  general 
the  same  as  in  Virginia.  Jn  1662  the  scarcity  of  silver  and 
the  inconveniences  of  tobacco  prompted  the  passage  of  a  law 
compelling  the  inhabitants  to  have  a  certain  amount  of 
metallic  money.  It  was  enacted  that  every 
householder  and  freeman  should  "  take  up  tenn 
shillings  per  poll  for  every  taxable  person 
under  his  or  their  charge,  to  be  paid  for  in  good  casked 
tobacco  at  id.  per  Ib.  .  .  .  to  pay  the  said  tobacco  upon  tender 
of  the  said  summes  of  money  proporconably  for  every  such 
person's  respective  family."  There  was  nothing  in  the  law  to 
prescribe  what  should  be  done  with  the  silver  thus  ob- 
tained. 

The  year  1753  was  distinguished  by  an  act  of  formidable 
length  and  remarkable  character  for  "  amending  the  staple 
of  tobacco."  First,  the  inspection  laws  were  greatly  improved 
and  then  it  was  provided  that  all  tobacco  debts  arising  before 
May  1 6,  1747,  if  paid  in  tobacco  inspected 
under  this  act  should  be  reduced  one-fourth. 
The  act  recited  also  that  since  traders  had 
generally  kept  their  books  in  terms  of  silver  money,  although 
their  dealings  had  been  in  tobacco,  and  the  intention  of  both 
debtor  and  creditor  had  been  for  payment  in  tobacco,  in  all 
such  cases  the  creditor  should  be  paid  in  tobacco  at  the  rates 
prevailing  at  the  time,  but  if  paid  in  tobacco  inspected  under 
this  act  the  debt  should  be  reduced  one-fourth.  All  judg- 
ments, bonds,  mortgages,  bills  of  exchange,  notes  or  other 
securities  of  any  kind  for  the  payment  of  money,  taken  to 
elude  the  provisions  of  this  act,  were  declared  null  and 
void. 

The  circulating  medium  of  the  New  England  colonies  was 


12  MONEY. 

quite  as  fantastic  as  that  of  Virginia  and  Maryland.     In  1631 

the  General  Court  of  Massachusetts  ordered  that  corn  should 

pass  for  payment  of  all  debts  at  the  price  it 

Early  Massa-       was  usually  sold  for,  unless   money  or  beaver 

chusettsCur-  .  .      .        ,    ' 

rency.  skins  were    expressly  stipulated.       For  more 

than  half  a  century  this  order  continued  in 
force  and  operation,  other  things  being  added  to  the  list 
from  time  to  time. 

In  1635  niusket  balls  were  made  legal  tender  to  the  extent 
of  i2d.  in  one  payment.  Merchantable  beaver  was  legal 
tender  without  limit  at  IDS.  per  pound. 

In  1640  Indian  corn  was  made  current  at  4J1.  per  bushel, 

wheat  at  6s.,  rye  and  barley  at  5^.,  and  peas  at  6s.     Dried 

fish  was  also  legal  tender.     Taxes  might  be 

Inflation  with      paid  jn  these  articles  and  also  in  cattle,  the 
Country  Prod- 
uce, latter  to  be  appraised. 

The  need  of  metallic  currency  was  severely 
felt.  In  1654  it  was  ordered  that  no  coin  should  be 
exported,  except  20^.  to  pay  each  one's  travelling  expenses, 
on  penalty  of  forfeiture  of  the  offender's  whole  estate. 

The  cost  of  carrying  the  country  produce  taken  for  taxes 
amounted  to  10  percent  of  the  collections.  A  constable 
once  collected  130  bushels  of  peas  as  taxes  in  Springfield. 
He  found  that  he  could  transport  this  portion  of  the  public 
revenue  most  cheaply  by  boat.  Launching  it  on  the  Con- 
necticut River,  he  shipped  so  much  water  on  board  at  the 
falls  that  the  peas  were  all  spoiled.  The  General  Court  made 
him  an  allowance. 

In  1670  it  was  ordered  for  the  first  time  that  contracts 
made  in  silver  should  be  paid  in  silver. 

In  1675,  during  King  Philip's  war,  the  need  of  morieyfor 
public  use  was  so  great  that  a  deduction  of  25  per  cent  was 
offered  on  all  taxes  so  paid.  This  rebate  was  afterwards 
increased  to  50  per  cent. 


MONEY  A   COMMODITY.  13 

The  first  settlers  of  New  England  found  wampumpeage, 
sometimes  called  wampum  and  sometimes  peage,  in  use  among 
the  aborigines,  as  an  article  of  adornment  and  a  medium  of 
exchange.  It  consisted  of  beads  made  from  the  inner  whorls 
of  certain  shells  found  in  sea  water.  The  beads 
were  polished  and  strung  together  in  belts  or 
sashes.  They  were  of  two  colors,  black  and 
white,  the  black  being  double  the  value  of  the  white.  The 
early  settlers  of  New  England  finding  that  the  fur  trade  with 
the  Indians  could  be  carried  on  with  wampum,  easily  fell 
into  the  habit  of  using  it  as  money.  It  was  practically  redeem- 
able in  beaver  skins,  which  were  in  constant  demand  in 
Europe.  The  unit  of  wampum  money  was  the  fathom,  con- 
sisting of  360  white  beads  worth  sixty  pence  the  fathom.  In 
1648  Connecticut  decreed  that  wampum  should  be  "strung 
sutably  and  not  small  and  great  vncomely  and  disorderly 
mixt  as  formerly  it  hath  been."  Four  white  beads  passed 
as  the  equivalent  of  a  penny  in  Connecticut,  although  six 
were  usually  required  in  Massachusetts  and  sometimes  eight. 
In  the  latter  colony  wampum  was  at  first  made  legal  tender 
to  the  amount  of  \2d.  only.  In  1641  the  legal  tender  limit 
was  raised  to  ,£10,  but  only  for  two  years.  It  was  then 
reduced  to  forty  shillings.  It  was  not  receivable  for  taxes  in 
Massachusetts.  The  use  of  wampum  money  extended  south- 
ward as  far  as  Virginia. 

The  decline  of  the  beaver  trade  brought  wampum  money 
into  disrepute.  When  it  ceased  to  be  exchangeable  in  large 
sums  for  an  article  of  international  trade  the  chief  basis  of  its 
value  was  gone.  Moreover  it  was  extensively 
counterfeited,  and  the  white  beads  were  turned 
into  the  more  valuable  black  ones  by  dyeing. 
Nevertheless  it  lingered  in  the  currency  of  the  colonies  as 
small  change  till  the  early  years  of  the  i8th  century.  While 
it  was  in  use  it  fluctuated  greatly  in  value. 


14  MONEY. 

In   1652    Massachusetts  established  a  mint  and  began  to 

coin  shillings  of  the  weight  of  72  grains,  the  true   shilling 

weighing  about  93  grains.     This  became  known  as  the  "  pine 

tree  shilling  "  from  the  figure  of  a  tree  stamped  on  it.     The 

short  shilling  had  come  into  use  insensibly, 


coins  SUVer  lon&  before  the  colony  set  up  her  mint.  The 
depreciation  was  due  to  the  pernicious  activity 
of  coin  clippers  who  were  at  work  everywhere  in  Europe 
and  America.  The  silver  coins  in  circulation  in  the  colonies 
were  chiefly  Spanish  dollars,  or  pieces  of  eight  reals,  and 
fractions  thereof,  brought  in  by  the  West  Indian  trade. 
These  were  light  or  heavy,  according  to  the  time  they  had 
been  in  circulation  and  the  treatment  they  had  received.  The 

heavy  ones  were  selected  to  make  remittances 
Pieces-of-Eight.  .  .  _.  .  .  .  ,  ,  »•  i*» 

abroad.     Those  which  remained  grew  lighter 

and  lighter  till,  in  1652,  the  dollar  had  lost  about  one-fourth 
of  its  original  weight.  Accordingly,  when  Massachusetts 
began  to  coin  shillings  she  conformed  to  the  custom  of  mer- 
chants and  made  them  one-fourth  less  valuable  than  the 
shillings  of  England.1 

Here  it  will  be  convenient  to  define  the  phrase  "  money  of 
account."  This  means  the  money  in  which  people  keep 

their  accounts,  and  do  their  thinking.  The 
^  Money  of  money  of  account  in  all  the  colonies  was 

pounds,  shillings,  and  pence,  but  there  were 
no  such  things  in  circulation,  except  a  limited  number  of  the 
before  mentioned  pine  tree  shillings.  The  money  in  actual 

1  Dr.  Bronson,  in  his  valuable  work  on  "  Connecticut  Currency,"  con- 
siders this  debasement  of  the  shilling  by  Massachusetts  an  act  of  inten- 
tional fraud  by  which  creditors  were  cheated  out  of  one-fourth  of  their 
dues.  The  true  explanation,  as  above,  with  interesting  details,  is  given 
in  an  anonymous  pamphlet  of  the  i8th  century  entitled:  "A  Discourse 
Concerning  the  Currencies  of  the  British  Plantations  in  America,"  etc. 
This  pamphlet  has  been  attributed,  on  insufficient  evidence,  to  Dr. 
Wm.  Douglass. 


MONEY  A    COMMODITY.  15 

use  was  the  Spanish  peso  or  dollar  and  its  fractions.  This 
dollar  was  rated  at  6  shillings  in  New  England.  The  Spanish 
real  was  accordingly,  in  those  colonies,  the  eighth  part  of 
72</.,  or  "ninepence,"  a  name  by  which  many  people  now 
living  remember  it.  When  the  dollar  was  divided  into  TOO 
cents  the  New  England  shilling  was  16^3  cents,  i.e.  the 
sixth  part  of  a  dollar.  In  New  York,  as  will  be  seen  later, 
the  dollar  came  to  be  rated  at  eight  shillings  and  the  real 
thus  became  the  "York  shilling"  or  12^  cents.  In  Penn- 
sylvania the  dollar  was  rated  at  7^.  6^/.,  or  90^.,  one  eighth  of 
which  was  approximately  \\d.  and  was  called  a  "  levy,"  an 
abbreviation  of  eleven,  and  the  half  of  it  a  "fip,"  an  abbre- 
viation of  five  pence.  As  the  Continental  Congress  sat  in 
Philadelphia  its  appropriations  were  made  in 

May  be  Different  dollars  and  ninetieths.     The   division  of  the 
from  that  pre-     .   ..  . 

scribed  by  Law.    dollar  into  one  hundred  parts  was  not  made 

till    i^Q2-     By  a  law  of  that   year  Congress 
enacted  that  the  money  of  account  of  the  United  States 
should  be  dollars,  dimes,  etc.,  but  it  did  not  become  so  in    , 
practice  until  after  the  civil  war.     All  the  people  kept  their       / 
accounts  and  did  their  thinking  in  dollars  and  ninepences, 
dollars  and  shillings,  dollars  and  levies,  dollars  and  bits,  the 
last  name  for  the  Spanish  real  being  peculiar  to  the  Gulf 
States  and  to  California.     In  my  younger  days  the  price  of 
every  article  of  merchandise  was  quoted  in  dollars,  shillings, 
and  sixpences.     These  examples  serve  to  show  that  a  law    ^ 
on  the  statute  book  establishing  a  money  of  account  does 
not  necessarily  make  one  in  practice. 

The  disorders  of  the  currency  due  to  the  clipping  and 
sweating  of  coin  led  to  different  valuations  of  the  Spanish 
"  pieces-of-eight  "  at  different  places.  According  to  a  mem- 
orandum made  by  William  Penn  for  the  Earl  of  Bellomont 
in  the  year  1700  they  passed  for  6s.  9^.  in  New  York  ;  for  -js. 
8</.  in  New  Jersey  and  Pennsylvania  ;  for  q.s.  6d.  in  Maryland, 


16  MONEY. 

and  for  $s.  in  Virginia  and  Carolina.  These  valuations  were 
liable  to  constant  change.  The  merchants  of 
Different  Rat-  London  addressed  a  petition  to  the  Govern- 
spanish  Dollar,  merit  asking  that  steps  might  be  taken  to  put 
an  end  to  these  uncertainties  in  the  colonies. 
The  evil  had  been  cured  in  England  a  few  years  earlier  by 
the  recoinage  of  1696,  a  really  heroic  measure,  in  which  the 
entire  loss  from  coin  clipping  had  been  borne  by  the  public 
treasury.  It  happened  that,  simultaneously  with  this  Lon- 
don petition,  one  of  like  tenor  was  presented  to  Lord 
Bellomont  by  the  merchants  of  New  York,  which  he  for- 
warded to  the  Board  of  Trade  and  Plantations  together  with 
the  memorandum  of  Penn. 

On  the  1 8th  of  June,  1704,  a  proclamation  was  issued  by 
Queen  Anne  on  this  subject.  It  first  stated  the  actual  value 
of  foreign  coin  circulating  in  America^  in  terms  of  sterling 
money,  according  to  the  assays  of  the  mint.  "  Sevil  pieces- 
of-eight  old  plate,1  17  pennyweight  12  grains"  were  equal 
to  4-f.  6d.  The  same,  new  plate  14  pennyweight,  3^.  ^d.  if. 
Mexico  pieces-of-eight  4^.  6d.  Pillar  pieces- 
of-eiSht  4*  6^-  3/  The  proclamation  then 
says  that  "from  and  after  thfe  first  day  of 
January  next  no  Sevil,  pillar  or  Mexico  pieces-of-eight  shall 
be  accounted,  received,  taken  or  paid  within  any  of  our 
colonies  or  plantations  at  above  the  rate  of  six  shillings  per 
piece,  current  money,  for  the  discharge  of  any  contracts  or 
bargains  to  be  made  after  the  said  first  day  of  January 
next." 

Six  shillings  was  considered  by  the  home  government  a 
fair  average  of  the  various  colonial  valuations  of  the  Spanish 
dollar.  This  valuation  came  to  be  known  everywhere  by 
the  term  proclamation  money,  or  proc.  money.  One  hun- 

1  The  word  plate  (Spanish  plata,  silver),  is  here  used  to  signify 
Spanish  silver  money,  not  bullion.  Old  plate  meant  old  coinage. 


MONEY  A    COMMODITY.  17 

dred  pounds  sterling  was  the  equivalent  of  £133^  procla- 
mation money. 

The  preamble  to  the  proclamation  says  that  it  is  issued 

in  order  to  "  prevent  the  indirect  practice  of  drawing  money 

from    one    plantation    to    another."     This   shows    that    our 

ancestors  had  the  notion  that  New  York,  for  example,  could 

draw  money  from  Boston  by  considering  a  dollar  equal  to 

6s.  9^.,  provided  Boston  considered  it  only  6s. 

Vhyitwas         jn  ^g  vear  ljoo  gouth  Carolina  expressed 

her  belief  in  this  proposition  by  statute.     The 

"mercantile  system,"  which  was  bottomed  on  the  idea  that 

the  precious  metals  are  the  only  form  of  wealth,  dominated 

Europe  and  America  at  that  time,  and  this  was  one  of  its 

numerous  manifestations  and  offshoots. 

The  proclamation  was  generally  disregarded.  Each  colony 
continued  to  keep  its  accounts  in  its  own  ideal  pounds, 
shillings,  and  pence,  and  even  where  these  coincided  for  the 
moment  with  "  proclamation  money  "  they  were  soon  brought 

out  of  harmony-  with  it  by  issues  of  depreciated 
It is  disregarded. 

paper.      Seeing   that   the   Proclamation    was 

not  regarded,  Parliament  in  1707  embodied  it  in  a  law  and 
decreed  a  penalty  of  six  months  imprisonment  and  a  fine  of 
£10  for  each  violation  of  it.  This  act  was  disregarded  as 
completely  as  the  previous  proclamation  had  been. 

The  first  local  currency  of  New  Netherland  was  wampum, 
but  it  was  subordinate  to  the  silver  coinage  of  the  mother 
country  ;  that  is,  it  was  reckoned  in  terms  of  that  coinage 
as  fixed  by  the  Dutch  West  India  Company  from  time  to 
time.  It  was  first  fixed  at  six  white  beads  for  a  stiver. 

Wampum  was  not  made  in  the  province  but 
Yorkltfoney  was  imPorted  from  the  east  end  of  Long 

Island,  the  principal  seat  of  production.  It 
is  mentioned  in  a  letter  from  the  Patroons  of  New  Nether- 
lands to  the  States  General  in  June,  1634,  as  "  being  in  a 


18  MONEY. 

manner  the  currency  of  the  country  with  which  the  produce 
of  the  country  is  paid  for,"  the  produce  of  the  country  being 
furs. 

Beaver  soon  became  current  here,  as  in  New  England, 
and  for  the  same  reason,  its  currency  value  being  fixed  by 
the  company  at  8  florins  per  skin.  This  was  the  first 
establishment  of  the  double  standard  on  Manhattan  Island. 

As    6    wampum    beads   were    equal    to   one 
First  Double 
Standard  on          stiver  and  20  stivers  to  one  florin,  the  ratio 

Manhattan  of  wampuni  to  beaver  was  960  to    i.     The 

Island. 

usual    consequences    ensued.      The    market 

ratio  did  not  coincide  with  the  legal  ratio  very  long.  Nor 
was  the  legal  ratio  of  either  wampum  or  beaver  to  silver 
maintained  ;  for,  in  1656  Director  Stuyvesant  wrote  to  the 
company  urging  that  beaver  be  rated  at  6  florins  instead  of 
8  and  wampum  at  8  for  a  stiver  instead  of  6,  as  these  rates 
were  nearer  the  commercial  values. 

The  company  ruminated  over  this  proposition  several 
months  and  finally  answered  in  April,  1657  :  "We  have, 
after  due  consideration  come  to  the  conclusion,  that  depre- 
ciation of  the  currency  means  destruction  of  the  commerce 
and  consequently  ruin  of  the  country.  To  prevent  this  we 
have  decided  to  make  no  sudden  change  but  proceed 
gradually,  beginning  with  the  wampum  which  is  to  be 
reduced  from  6  to  8  for  the  stiver,  it  being 
wel1  understood  that  this  reduction  shall  not 
take  effect  before  the  beginning  of  next  year, 
1658,  and  in  the  meantime  upon  the  receipt  hereof  the 
people  must  be  informed  of  it,  as  such  measures  are  pub- 
lished here  in  all  well  governed  Republics  and  Kingdoms, 
to  cause  the  least  possible  inconvenience  and  loss  to  the 
community.  We  shall  wait  with  reducing  the  currency 
value  of  beavers  from  8  to  6  guilders,  for  we  see  difficulties 
in  making  these  changes  simultaneously." 


MONEY  A    COMMODITY.  19 

In  1658  beaver  was  reduced  to  6  florins,  -but  it  was 
advanced  to  7  and  again  reduced  to  6  before  the  Dutch 
rule  came  to  an  end  in  1664. 

The  depreciation  of  wampum  continued  and  Stuyvesant 
advised  the  company  that  it  was  immaterial  whether  the 
rate  was  8  for  a  stiver  or  10,  "because  the  dealer  marks, 
holds,  or  sells  his  goods  according  to  the  abundance  of 
wampum  and  the  price  he  has  to  give  for  beavers."  In 
the  same  communication  he  said  :  "  Wampum  is  the  source 

and  mother  of  the  beaver  trade,  and  for  goods 
Stuyvesant  .  . 

opposed  to  Warn-  only>    without    wampum,    we    cannot    obtain 

pum  and  Beaver  beaver  from  the  savages."  Nevertheless  he 
as  Money. 

insisted  that  neither  wampum  nor  beaver  was 

fit  to  be  the  currency  of  a  civilized  people.  Stuyvesant 
was  a  very  able  man.  In  nothing  is  his  sagacity  more  clearly 
shown  than  in  his  endeavors  to  introduce  silver  coin  as  the 
sole  money  of  the  colony.  In  the  letter  above  mentioned  he 
says  :  "  It  would  be  desirable,  therefore,  as  I  have  repeatedly 
stated  to  you,  that  wampum  and  beavers,  as  well  as  tobacco, 
should  be  declared  an  absolute  commodity  or  merchandise, 
and  that  the  importation  of  no  other  small  currency  than 
silver  should  be  allowed  here." 

On  the  expulsion  of  the  Dutch  authorities  the  law-making 
power  was  vested  in  the  Duke  of  York  (afterwards  King 
James  II.),  "  his  heirs,  deputies,  agents,  commissioners  and 
assigns."  Colonel  Nicolls,  who  bore  the  Duke's  commission 
and  who  had  received  Stuyvesant's  surrender, 
Specific  Con-  hastily  summoned  an  assembly  of  the  principal 
of  1664.  inhabitants  at  Hempstead,  L.L,.  and  promul- 

gated a  set  of  laws  dated  March  i,  1664,  for 
the  government  of  the  province.  These  have  ever  since  been 
known  as  "the  Duke's  Laws."  The  heterogeneous  state  of 
the  currency  was  recognized  by  a  provision  that  "  all  pay- 
ments upon  contracts  and  engagements  should  be  satisfied 


20  MONEY. 

in  kind  according  to  covenant."  Wampum  and  beaver  con- 
tinued to  be  the  money  of  account  for  at  least  ten  years,  for 
in  1674  the  Governor  and  Council,  for  the  purpose  of  com- 
pleting the  fortifications  of  New  York,  ordered  that  a  loan 
should  be  required  "  of  the  most  affluent  inhabitants  of  this 
city,"  whose  property  was  above  "  4,000  guilders  wampum 
value,"  which  loan  should  be  paid  with  merchantable 
beaver,  or  wheat  at  wampum  price.  Both  wampum  and 
beaver  gradually  faded  away  toward  the  close  of  the  iyth 
century. 

Coin  clipping  went  on,  after  the  proclamation  of  Anne,  as 
before.  It  became  necessary  to  adopt  a  new  method  of  collect- 
ing and  disbursing  the  public  revenue.     A  thousand  pounds 
might  mean  one  thing  to-day  and  another  thing  to-morrow. 
The  Legislature  of  New  York  began,  early  in 

Silver  Money        the    i8th   century,  to  make   appropriations   in 
reckoned  by  ...  ..      .       ,      ,        ,,         .    - 

Weight.  ounces  of  plate,  or     coined  plate     as  it  was 

sometimes  called.  This  was  a  return  to  the 
Abrahamic  method.  An  act  of  1709  appropriates  10,000 
ounces  of  plate,  which  sum  is  declared  to  be  equal  to  14,000 
pounds,  meaning  New  York  pounds.  Thus  the  ounce  was 
reckoned  at  eight  shillings  in  New  York.  In  sterling  it  was 
5^.  2d.,  i.e.,  sterling  was  worth  33  per  cent  more  than  New 
York  money,  but  the  latter  was  equal  to  proclamation  money. 
From  1709  to  1724,  all  levies  of  taxes  and  all  appropria- 
tions of  public  money  were  made  indifferently  in  ounces  of 
plate  or  in  New  York  pounds,  shillings,  and  pence,  but  occa- 
sionally in  both.  In  the  latter  year  the  pound  sterling  was 
worth  50  per  cent  more  than  its  New  York  namesake.  In 
1744  it  was  worth  65  per  cent  more  ;  in  1767  80  per  cent 
more.  The  depreciation,  subsequent  to  the  proclamation 
of  Anne,  had  been  caused  by  colonial  bills  of  credit. 

In    1691    the  Assembly  of  South  Carolina   passed  an  act 
making  Spanish  or  Mexican  dollars,  or  pieces-of-eight  weigh- 


MONEY  A    COMMODITY.  21 

ing  13  pennyweights  "  or  more  "  current  at  five  shillings  each  ; 
those  not  of  full  weight  four  shillings.     In  1694  "  Lyon  dol- 
lars"1 were   made  current  at  four  shillings, 

Carolina  Money     and  an^  &°ld  coins  at  the  rate  °f  ten  sm'llings 
for    two    pennyweights.      Thus    the  ratio  of 

13  to  i  between  silver  and  gold  was  legalized. 

In  the  year  1700  we  find  the  South  Carolinians  engaged  in 
the  practice  (reprobated  later  in  the  Proclamation  of  Anne) 
of  attempting  to  draw  money  from  her  neighbors  by  the 
mental  operation  of  considering  Spanish  dollars  worth  a 
shilling  or  so  more  than  they  had  previously 
attract  Money  taken  them  to  be.  On  the  i6th  of  November 
by  Raising  the  an  act  Was  passed  "to  raise  the  current  coin 
of  this  province."  It  recited  that"  whereas  the 
great  decay  of  trade  hath  been  occasioned  by  the  scarcity  of 
moneys  —  for  the  prevention  thereof  and  for  the  better  secur- 
ing of  that  which  is  still  left  among  us  and  likewise  for  the 
encouragement  of  greater  quantities  of  moneys  to  be  brought 
into  this  part  of  the  province,"  all  pieces-of-eight,  "  Mexico 
civill 2  or  pillar,"  weighing  13  pennyweights  should  be  current 
money  of  South  Carolina  at  6  shillings,  all  weighing  15 
pennyweights  at  6s.  9^.,  and  all  weighing  17  pennyweights  at 
*js.  6d.,  Lion  dollars  at  6s.,  English  crowns  at  js.  6^/.,  and 
New  England  shillings  at  13% d.  Gold  coins  were  rated  in 
this  act  at  6s.  6d.  per  pennyweight.  This  was  a  depreciation 
of  the  currency  by  33  per  cent  since  the  passage  of  the  act 
of  1694. 

It  will  be  noticed  that  the  pine  tree  shilling  of  Massa- 
chusetts is  here  rated  i^//.  above  its  valuation  at  home. 
This  was  by  way  of  beating  the  Yankees  at  their  own 
game. 

1  This,  I  believe,  was  a  Dutch  coin  stamped  with  the  figure  of  the 
lion  of  Brabant.  I  have  never  seen  one. 

-  Meaning  Seville,  the  place  where  the  Spanish  mint  was  situated. 


22  MONEY, 

In  1719  the  Assembly  made  rice  receivable  for  taxes  "to 
be  delivered  in  good  barrels  upon  the  bay  in  Charlestown." 

In  the  following  year  a  tax  of  1,200,000  Ibs. 
Rice  Currency.  .  J 

of  rice  was  levied   and   commissioners  were 

appointed  to  issue  rice  orders  to  public  creditors,  in  antici- 
pation of  collection,  at  the  rate  of  30^.  per  100  Ibs.,  in  the 
following  form : 

"  This  order  entitles  the  bearer  to  one  hundred  weight  of 
well  cleaned  merchantable  rice  to  be  paid  to  the  commis- 
sioners that  receive  the  tax  on  the  second  Tuesday  in  March, 

1723." 

Rice  orders  were  made  legal  tender  for  all  purposes,  and 
counterfeiting  was  made  felony  without  benefit  of  clergy. 

When  California  was  first  invaded  by  gold  seekers  there 
were  a  few  Mexican  coins  in  circulation  there,  not  nearly 
sufficient  to  answer  the  needs  of  the  growing  community. 
The  immigrants  brought  more  or  less  metallic  money  with 
them.  The  smaller  coins  were  those  of  many 
De^ces^°rilia  different  countries,  chiefly  Spanish.  For  want 
of  sufficient  coins  the  first  trading  was  done 
largely  with  gold  dust,  sometimes  by  weighing  it  in  scales, 
sometimes  by  guess-work.  A  "  pinch  "  of  gold  dust  about 
as  large  as  a  pinch  of  snuff  had  a  current  value  and  was  a 
common  measure  in  places  where  there  was  no  means  of 
weighing.  At  a  public  meeting  in  San  Francisco,  September 
9,  1848,  it  was  resolved  by  unanimous  vote  that  $16  per 
ounce  was  a  fair  price  for  gold.  This  rate  was  immediately 
adopted  in  all  business  transactions.  By  and  by  private 
coiners  of  gold  came  into  the  field.  The  Legislature  was  at 
first  alarmed  by  the  appearance  of  these  unaccustomed 
pieces,  and  passed  a  law  to  prohibit  their  circulation  and  to 
close  the  shops  where  they  were  made.  It  was  soon 
found,  however,  that  they  were  a  great  convenience.  Then 
the  law  was  repealed.  Several  establishments  immediately 


GENERAL  PRINCIPLES.  23 

went  to  work  assaying  and  coining  gold.  One  of  these  was 
at  Salt  Lake  City,  whose  productions  were  known  as  Mor- 
mon coins.  Only  one  of  these  establishments,  that  of  Moffat 
&  Co.,  of  San  Francisco,  conformed  exactly 
to  the  Government  standard  of  weight  and  fine- 
ness. All  the  others,  however,  including  the 
Mormon  ones,  circulated  freely  and  were  received  on  deposit 
by  the  banking  houses  until  the  government  set  up  an  assay 
office  and  began  to  stamp  octagonal  pieces  of  $50,  called 
"slugs,"  and  afterwards  those  of  $20  each.  This  was  done 
in  1851;  the  San  Francisco  Mint  was  not  ready  till  1854. 
The  Moffat  coins  continued  to  circulate  after  the  mint  had 
gone  into  operation,  since  everybody  had  confidence  in  their 
goodness.  It  is  estimated  that  $50,000,000  of  private  coins 
were  struck.  They  were  received  in  the  Atlantic  cities  at 
their  assay  value  only. 


CHAPTER    II. 
GENERAL    PRINCIPLES. 

IT  is  evident  from  what  has  gone  before  that  money,  when 
real,  is  a  commodity;  and  when  representative,  represents  a 
commodity.  This  is  true  of  gold  as  well  as  of  beaver  skins, 
of  tobacco,  of  rice,  or  of  wampum. 

Roscher  correctly  observes  that  if  money  were  nothing 

but  a  measure  of  value   it  would  on  that  account,  if  on   no 

other,  possess  value  ;  just  as  a  yardstick  possesses  value  as 

a  means  of  measuring  cloth,  apart  from  its  value  as  wood  or 

brass.     This  fact   is   often   contradicted    and 

Commodity          st^  °ftener  lost  sight  of.     No  invention  or 

discovery  since  the  world  began   has  been  of 

so  great  service  to  mankind  as  that  of   a  common  measure 


24  MONEY. 

of  value.  One  can  hardly  imagine  a  world  existing  without 
it.  To  say  that  the  most  indispensable  thing  in  the  whole 
world  is  a  thing  of  no  value,  is  a  contradiction  of  terms 
absolutely  blighting  to  the  human  intellect.  As  a  matter 
of  fact,  however,  all  the  things  that  have  been  used  as  money 
have  possessed  other  value,  and  we  have  the  best  reason  to 
believe  that  this  other  value  led  to  their  use  as  money  in 
every  instance  without  a  single  exception.  We  cannot  con- 
ceive that  gold  would  ever  have  been  brought  into  use  as 
money  if  it  had  not  possessed  certain  qualities  of  beauty, 
portability,  durability,  etc.,  which  caused  it  to  be  prized  as 
an  article  of  adornment.  In  the  Homeric  poems  everything 
most  precious  and  beautiful  is  golden.  Zeus  clothes  him- 
self with  gold,  his  palace  is  floored  with  gold,  his  horses 
have  manes  of  gold,  and  he  grasps  a  whip  of  gold.  The 
goddess  of  love  and  beauty  is  golden  Aphrodite. 

All  trade  is  barter,  or  the  exchange  of  property  and  service 
for  other  property  and  service.  This  is  true  when  wheat  is 
exchanged  for  gold  and  gold  for  cloth.  Here  are  two  acts 
of  barter  to  accomplish  one  result,  namely,  the  procuring 
of  cloth  for  wheat.  This  is  a  case  where  the 
longest  way  around  is  the  shortest  way  to 
your  destination.  Fancy  two  men  trying  to 
establish  an  equation  between  cloth  and  wheat  without  any 
common  medium  of  exchange.  This  would  be  a  very  simple 
problem,  however,  in  comparison  with  most  of  those  which 
mankind  has  to  deal  with.  Take  another  example :  What 
should  be  the  ratio  of  exchange  between  a  given  quantity 
of  steel  rails  and  the  services  of  a  physician  ? 

There  are  certain  tribes  on  the  earth  at  the  present  time 
so  sunk  in  barbarism  that  they  have  no  common  medium  of 
exchange.  Aristotle  says  that  there  were  such  in  his  day.1 

1 "  It  is  plain  that  in  the  first  society  (that  is  in  the  household)  there 
was  no  such  thing  as  barter,  but  that  it  took  place  when  the  community 


GENERAL  PRINCIPLES,  25 

Professor  Jevons  mentions  several  in  the  first  chapter  of  his 
"  Money  and  the  Mechanism  of  Exchange." 

Perhaps  sufficient  has  been  said  to  show  that  the  selling 
of  wheat  for  gold  and  then  selling  the  gold  for  cloth  are 
really  two  acts  of  barter.  The  word  barter  is  commonly 
used  to  signify  the  exchange  of  property  without  the  use  of 
money.  It  must  be  borne  in  mind,  however,  that  all  trade  is 
barter,  even  when  the  precious  metals  are  employed  as  inter- 
mediaries —  the  latter  being  articles  of  barter  also,  and 
/  possessing  the  same  value  as  the  things  for  which  they 
I  are  exchanged.  The  whole  science  of  money  hinges  on  this 
]  fact. 

Objections  to  tobacco  money  in  Virginia  and  to  the 
variegated  colonial  currency  of  New  England  are  obvious. 
They  were  inconvenient  in  every  way  In  the  first  place, 
they  were  not  easily  portable.  It  cost  £3  6s.  in  1662  for 

became  enlarged  ;  for  the  former  had  all  things  in  common,  while  the 
latter,  being   separated,  must   exchange  with  each  other  according  to 

their  needs,  just  as  many  barbarous  tribes  now  subsist 
k  Aristotle  on  the 
Origin  of  Money      ?  barter.     For  these  merely  exchange  one  useful  thing 

for  another,  as  for  example  giving  and  receiving  wine 
for  grain  and  other  things  in  like  manner.  This  kind  of  trading  is  not 
contrary  to  nature  nor  does  it  resemble  a  gainful  occupation,  being 
merely  the  complement  of  one's  natural  independence.  From  this, 
nevertheless,  it  came  about  logically  that  as  the  machinery  for  bringing 
in. what  was  wanted,  and  of  sending  out  a  surplus,  was  inconvenient,  the 
use  of  money  was  devised  as  a  matter  of  necessity.  For  not  all  the 
necessaries  of  life  are  easy  of  carriage  ;  wherefore,  to  effect  their 
exchanges,  men  contrived  something  to  give  and  take  among  them- 
selves, which,  being  valuable  in  itself,  had  the  advantage  of  being  easily 
passed  from  hand  to  hand  for  the  needs  of  life ;  such  as  iron  or  silver 
or  something  else  of  that  kind,  of  which  they  first  determined  merely 
the  size  and  weight,  but  eventually  put  a  stamp  on  it  in  order  to  save 
the  trouble  of  weighing,  and  this  stamp  became  the  sign  of  its  value." 
Aristotle's  Politics,  I.  9.  —  This  definition  of  money  and  explanation  ^^ 
of  its  origin  have  never  been  surpassed.  / 


26  MON&Y. 

cartage  of  the    proceeds  of  the    tax  levy   of  the  town   of 

Ipswich,  amounting  to  ^70  6s.  8^/.     In  Vir- 

Qualities  of  Good   ginia  there  was  a  difference  in  the  value  of 

Carriage.  tobacco  notes  according    to    the  location    of 

the  warehouse  where  the  tobacco  was  situated. 

This  amounted  in  some  cases  to  los.  per  cwt. 

Another  objection  is  found  in  the  fluctuations  in  value  of 

these  currencies.     The  range  of  tobacco  prices  in  Virginia 

from   1619  to   1775  was  from  3^.  6d.  down  to 

\d.  per  Ib.     We  have   seen  what   strenuous 

efforts    were    made    by    the    tobacco-planting    colonies    to 

restrict  the  production  and  what  distress  and  disorder  were 

caused  by  their  inability  to  do  so. 

Another  inconvenience  attending  these  media  of  exchange 
was  the  difference  in  value  between  different  lots  of  the 
same  article  at  the  same  place.  Tobacco,  even  when  up  to 
standard,  was  of  four  different  kinds,  described  in  the  laws 
as  sweet-scented,  Oronoko,  leaf,  and  stemmed. 
Then  there  were  differences  in  the  inspection, 
some  inspectors  being  more  skillful  and  more  strict  than 
others,  whereby  their  receipts  or  notes  came  to  have  a  higher 
price  than  others.  There  were  differences  also  arising  from 
different  seasons  and  different  cultivators.  A  large  part  of 
the  legislation  of  both  Virginia  and  Maryland  was  directed 
to  the  suppression  of  "trash."  No  substance  can  be  con- 
sidered suitable  for  the  purposes  of  money,  if  different  parcels 
of  it  are  of  different  degrees  of  goodness. 

Want  of   durability  was  another  objection  to  all  of  these 
things.     There  was  so  much   shrinkage   and 
deterioration  in  tobacco  that  the  notes  issued 
against  it  could  not  be  safely  kept  more  than  one  year. 

Some  of  the  articles  used  as  money  in  the  colonial  period 
could  be  divided  and  subdivided  without  losing  any  part  of 
their  value,  while  others  could  not.  Grain  and  tobacco 


* 


GENERAL  PRINCIPLES.  27 

could  be  so  divided.     Beaver  skins  could  not.     For  the  pur- 
poses of  exactitude  divisibility  is  necessary. 
No  article  which  does  not  possess  this  quality 
can  be  considered  a  good  medium  of  exchange. 

It  is  not  absolutely  necessary  that  the  substance  used  as 
money  should  be  coined.  Gold  and  silver  were  used  as 
money  before  they  were  coined.  At  first  they  passed  by 
weight,  and,  as  Aristotle  says,  the  stamp,  which  was  put 
on  them  to  designate  the  weight,  afterwards 

became  the  sign  of  the  value-  A11  that  coin- 
ing  does  is  to  save  the  trouble  of  frequent 
weighing  and  assaying.  Accordingly  it  is  desirable  that  the 
substance  of  which  money  is  composed  should  be  one  which 
can  receive  and  retain  a  stamp.  None  of  the  substances 
which  the  early  American  colonies  used,  in  lieu  of  the 
precious  metals,  answered  this  requirement.  The  putting 
of  wampum  shells  together  in  parcels  equal  to  one  penny, 
and  higher  denominations,  easily  recognized,  was  something 
akin  to  coinage. 

So  also  was  the  marking  of  a  hogshead  of  tobacco  by  an 
inspector.  When  so  marked  it  would  pass  without  reweigh- 
ing  or  reexamination.  The  stamp  had  here  become  the 
sign  of  value,  but  the  tobacco  itself  could  not  be  stamped 
because  the  substance  was  not  suitable  for  receiving  and 
retaining  an  impression. 

All  writers  are  agreed  that  the  six  requisites  mentioned 
above  are  essential  to  a  good  kind  of  money,  viz.,  port- 
ability, homogeneity,  durability,  divisibility,  cognizability, 
and  stability  of  value. 

Long  experience  has  taught  mankind  that  these  qualities 
are  best  embodied  in  two  metals,  gold  and  silver.  Experi- 
ence has  likewise  shown  that  it  is  impracticable  to  have  both 
of  those  metals  as  a  standard  of  value  at  the  same  time.  Gold 
was  retained  rather  than  silver  because  it  contains  much 


28  MONEY. 

•    value  in  little  weight  and  hence  is  better  suited  to  the  needs 
of  modern  commerce.     Silver  remained  in  use 
Metals.  afterwards    as    small    change  because  people 

were  habituated  to  it.  Every  piece  of  our  gold 
money  passes  for  the  value  of  the  metal  contained  in  it. 
This  is  true  of  the  gold  money  of  all  nations.  I  had  occasion 
recently  to  buy  500  francs  in  gold  at  a  broker's  office  in 
Wall  street.  He  gave  me  twenty-five  pieces  of  20  francs  each. 
About  one-half  of  them  were  French  and  the  remainder 
Belgian,  Spanish,  Italian,  Greek,  and  Tunisian.  They  passed 
readily  everywhere  on  the  Continent  of  Europe  at  their  full 
value. 

It  must  not  be  assumed  that  gold   is  absolutely  stable  in 

value.     When  we  speak  of  the  value  of  the  one  thing  which 

measures  all  values  we  mean  its  purchasing  power  in  terms  of 

those  commodities  whose  supply  is  unlimited,  or  not  controlled 

by  monopoly.    The  value  of  gold  thus  measured 

Gold  not  wholly    is  subject  to  variations,  but  it  is  impossible  to 

FreefromVari- 

ations  in  Value,    measure   them   with  accuracy  even  when  we 

compare  prices  during  long  intervals  of  time. 
We  are  concerned  at  present  only  with  the  comparative 
steadiness  of  value  of  different  things,  as  for  example,  gold 
and  tobacco.  If  gold  is  subject  to  fewer  changes  of  purchas- 
ing power  than  tobacco  it  is  better  fitted  to  serve  the  purposes 
of  money  and  will  sooner  or  later  supplant  it  in  that  function. 
If  it  is  subject  to  fewer  changes  than  any  other  known 
substance  it  will  supersede  all  others.  The  fact  that  it  is 
not  wholly  free  from  variation  itself  will  not  prevent  it 
from  becoming  the  sole  and  universal  money  of  civilized 
mankind. 

Money  is  the  product  of  evolution,  a  result  of  the  ages. 
The  better  has  gradually  crowded  the  worst  out  of  existence. 
Our  own  history  forms  no  exception  to  this  rule,  for  although 
our  colonial  ancestors  for  a  time  went  back  to  a  system 


COINAGE.  29 

almost  as  rude  as  that  of  the  Homeric  period,  they  eventually 

abandoned  it  and  resumed  metallic  money. 
Money  a  Product  .  ' 

of  Evolution.        which    always    served   as    a   mental  standard 

even  when  it  was  not  a  legal  one.  It  is 
difficult  now  to  understand  why  they  endured  the  burden 
of  bad  money  so  long.  There  is  evidence  showing  that  the 
taxpayers  and  the  "  debtor  class  "  wanted  to  have  a  variety 
of  money  as  well  as  a  great  quantity  of  it.  Nothing  could 
be  more  abundant  than  the  crops  of  wheat,  corn,  tobacco, 
and  rice,  yet  it  does  not  appear  from  the  colonial  records 
that  either  taxpayers  or  debtors  as  a  whole  gained  any 
advantage  from  this  abundance  nor  that  they  were  at  all 
satisfied  with  it.  In  fact  laws  were  frequently  passed  in 
Virginia  to  save  them  from  the  oppression  of  being  obliged 
to  pay  tobacco,  and  not  infrequently  relief  was  granted  by 
enabling  them  to  pay  silver  instead. 

An   invariable  consequence  of  the   use  of  tobacco   and 
other  produce  as  money  was  the  exportation  of  specie.     It 

is  true  that  the  exported  specie  paid  for  other 
Exportation  of  . 

Specie  caused        property.      It  was  not  given  away.     The  mis- 

by  the  Use  of        chief  was  that  the  people  swapped   a  good 
Inferior  Money.  * 

medium  of  exchange  for  a  bad  one.      They 

took  a  bad  tool  in  place  of  a  good  one  in  the  most  important 
part  of  their  public  and  private  economy  or  housekeeping. 


CHAPTER    III. 


COINAGE. 


COINAGE  is  the  act  of  assaying,  subdividing,  and  stamping 
a  metal  intended  to  be  used  as  money.  It  is  a  certification 
of  weight  and  fineness,  but  not  necessarily  of  value,  since 


30  MONEY. 

the  same  coin  may  exchange  for  more  goods  at  one  time 
than  at  another.  Governments  usually  forbid 
Coinage  is  an  coinage  by  private  persons,  because  private 
cation.  J  coiners  have  a  motive  to  deceive,  and  because 

\  deception  is  easy.  Formerly  Governments 
themselves  habitually  cheated  their  subjects  by  altering  the 
fineness  of  coins,  but  that  form  of  swindling  is  no  longer 
practiced.  Modern  Governments  in  coining  money  adhere 
as  closely  to  the  legal  standard  as  human  skill  can  attain. 
If  it  were  certain  that  private  coiners  would  always  make 
coins  as  good  and  as  uniform  as  those  of  the  Government 
there  would  be  no  reason  for  the  Government  making  any. 

We  have  seen  how  individual  coiners  operated  in  Cali- 
fornia for  some  years  after  that  country  came  into  our 
possession. 

The  first  thalers  were  made  at  a  private  mint  in  Joachims- 
thai,  Bohemia,  in  the  year  1581.  They  were  made  by  the 
Count  of  Schlick,  and  were  called  Joachimsthalers,  or 
Schlickenthalers,  or  simply  thalers.  The  German  word  Thai 

is  the  equivalent  of  dale  or  vallev  in  English: 
Private  Coiners. 

and    thaler   is   daler,   or   dollar.     The    coins 

manufactured  by  the  Count  of  Schlick  were  of  uniform 
goodness.  Uniformity  was  so  rare  in  the  i6th  century 
that  the  thalers  acquired  great  popularity,  and  thus  the 
word,  with  some  slight  variations,  passed  into  many  of  the 
languages  of  Europe.  Dollar  was  an  English  word  in  the 
time  of  Shakspeare,  just  as  ducats  and  byzants  were  English 
words,  although  there  were  no  such  English  coins. 

Aristotle  tells  us  that  the  first  coins  were  pieces  of  metal 
with  the  weight  stamped  upon  them,  and  that  the  stamp 

afterwards  became  the  sign  of  the  value.     In 
Weight-Coins. 

early    Rome    small    payments  were  made  by 

tale,  the  larger  ones  by  weight.  The  Latin  word  expendo, 
from  which  our  words  expend  and  expense  are  derived, 


COINAGE.  31 

means  to  weigh  out.  The  Latin  stipendium  also  means  a 
payment  by  weight.  The  shekel,  the  talent,  the  drachma, 
the  pound,  the  penny,  the  peso,  the  livre,  and  the  mark  were 
originally  the  names  of  weights.  They  are  instances  of 
the  transference  of  the  name  of  a  weight  to  the  name  of  a 
coin. 

It  has  been  proposed  lately  by  men  of  ability  that  we 
should  go  back  to  the  old  fashion,  and  no  longer  issue  legal 
tender  coins  from  the  mint  but  specified  weights  instead ;  as 
for  example,  ounces  of  gold  and  of  silver,  leaving  them  to 
pass  for  what  they  are  worth.  If  this  were 
aboSh  Legal  done,  who  could  guarantee  that  we  should  not 

Tender  not  travel  the  same  road  that  our  ancestors  did  ? 

Practicable. 

Who  could  say  that  we  should  not  come  to 

regard  the  gold  ounce  as  we  now  regard  the  gold  eagle  and 
make  it  a  legal  tender,  as  soon  as  the  inconvenience  of  not 
having  any  legal  tender  was  seriously  felt?  If  this  plan  is 
regarded  as  a  hopeful  means  of  doctoring  the  silver  craze,  I 
think  that  the  same  amount  of  political  force  needed  to 
carry  this  measure  through -Congress  might  cure  the  silver 
disease  in  more  direct  ways. 

A  standard  is  a  measure,  by  comparison  with  which  the 

size,   weight,   capacity,   fineness,   value    of   other   things    is 

determined,  as  a  standard  bushel,  a  standard 

sta^iS.1^      Sallon'  etc"     It:  is  Pr°Per'  therefore,  to  speak 

of  a  standard  of  value,1  a  standard  of  weight, 

a  standard  of  fineness.     The  phrase  "standard  silver  dol- 

1  Perhaps  valuation  would  be  a  better  word.  In  the  Constitution 
of  the  United  States  the  word  value  is  used  in  the  sense  of  valuation 
in  the  paragraph  which  gives  Congress  the  power  "to  coin  money, 
regulate  the  value  thereof  and  of  foreign  coin."  The  word  value,  as 
now  used,  means  purchasing  power.  Of  course  Congress  cannot  regu- 
late the  value  of  its  own  coins  in  that  sense,  still  less  that  of  foreign 
coins.  But  it  can  regulate  the  valuation  of  them  in  its  own  receipts  and 
payments  and  between  individuals. 


32  MONEY. 

lar,"  often  used  in  this  country,  is  a  misnomer.  It  was 
first  employed  to  distinguish  the  dollar  of  412^  grains  from 
the  trade  dollar  of  420  grains.  The  silver  dollar  is  not  a 
standard  of  anything.  Its  value  in  trade  is  about  double  its 
metallic  value,  because  the  Government  practically  redeems 
it  in  gold. 

A  unit  of  value  must  be  one  thing,  not  two  or  more  things. 
In  our  first  mint  law,  the  gold  eagle  was  declared  to  bej'of 
the  value  of  ten  dollars  or  units,"  the  dollar 
or  unit  being  "of  the  value  of  the  Spanish 
milled   dollar,"    and   the   weights   of  both  were    specified. 
This  was  an  incongruity  since  it  implied  two  units.     The 
unit  of  value  now  is  the  gold  dollar  only.     If  two  metals  are 
coined  in  unlimited   quantities,   there   must  be   a  ratio    of 
weight  at  which  each  may  be  used  in  the  pay- 
ment of  debts.    The  ratio  of  15  to  i  means  that 
fifteen  ounces  or  pounds  of  coined  silver  shall  be  equal  for 
debt-paying  purposes  to  one  ounce  or  pound  of  coined  gold. 
Wise  men  in  the  past  saw  the  impossibility  of  having  two 
standards  at  the  same  time  and  keeping  the  coins  of  both  in 
simultaneous  circulation.     John   Locke  was  one  of   these. 
Believing  it  to  be  necessary  to  make  a  choice  between  silver 
and  gold  as  the  standard,  he  chose  silver,  but 

he  thought  that  g°ld  ought  to  be  coined  as 
commercial  money,  i.e.,  to  pass  for  what  it 
was  worth  but  not  to  be  legal  tender.  Mirabeau  and  the 
other  statesmen  who  considered  this  subject  in  France  dur- 
ing and  after  the  Revolution  chose  silver  as  the  standard 
rather  than  gold  because  it  was  susceptible  of  division  into 
small  sums,  and  was  therefore  deemed  better  adapted  to  the 
needs  of  French  industry.  When  it  became  necessary,  in 
our  own  country,  about  the  year  1834,  to  change  the  ratio  of 
15  to  i  which  had  been  established  in  1792,  Mr.  Condy 
Raguet,  the  foremost  economist  of  that  period,  took  the 


COINAGE.  33 

same  ground  that  Locke  had  taken  in  England  and  Mirabeau 
in  France. 

All  of  these  wise  men  were  wrong,  but  they  must  not  be 
blamed.  It  was  by  no  means  obvious  that  one  of  the  two 
metals  (and  the  one  most  largely  used)  could  be  safely  de- 
based, and  reduced  to  a  mere  counter,  or  token  money,  of 
limited  legal  tender,  the  other  being  -retained  as  full  legal 
tender.  Yet  the  truth  was  perceived  by 
Adam  Smith  on  Adam  Smith.  In  the  "Wealth  of  Nations" 
Coinage.  (!•  5)>  speaking  of  the  inconveniences  to  Eng- 

lish trade  arising  from  the  exportation  of  sil- 
ver coin,  he  says  : 

"  This  inconveniency  perhaps  would  be  less  if  silver  was 
rated  in  the  coin  as  much  above  its  proper  proportion  to 
gold  as  it  is  at  present  rated  below  it :  provided  it  was  at     \  / 
the  same  time  enacted  that  silver  should  not  be  a  legal    /\ 
tender  for  more  than  the  change  of  a  guinea,  in  the  same 
manner  as  copper  is  not  a  legal  tender  for  more  than  the 
change  of  a  shilling." 

Although  this  weighty  suggestion  was  published  in  1776, 
it  was  not  noticed  by  any  government  until  1816  when  Mr. 
Pole,  the  master  of  the  British  Mint,  called  the  attention  of 
Parliament  to  it  in  connection  with  other  monetary  re- 
forms. In  1816  a  law  was  passed  reducing  the 
wei§ht  of  British  silver  coins  by  6  per  cent 
and  making  them  legal  tender  for  only  40  shil- 
lings in  one  payment,  and  providing  that  silver  should  be 
bought  by  the  Government  and  coined  for  the  Government 
only.  There  has  been  no  trouble  since  that  time  in  keeping 
silver  and  gold  in  concurrent  circulation,  but  the  silver  in 
British  coins  is  worth  only  about  half  of  its  face  value. 

The  English  experiment  seems  not  to  have  been  noticed 
by  other  nations,  for  the  reason  probably  that  silver  and  not 
gold  was  their  principal  money.  When,  in  1834-37,  the 


34  MONEY. 

United  States  changed  its  ratio  to  i :  16  gold  was  overvalued 
just  as  it  had  been  in  England  in  1717  and  with 

Silver  Coins  in    the  same  consequences.     Our  silver  began  to 
the  United  States  , 

prior  to  1853.  be  exported.  Ihe  minor  coins,  being  of  pro- 
portional weight  with  the  dollar,  were  melted 
and  exported,  and  their  place  in  the  circulation  was  taken  by 
light-weight  foreign  coins,  principally  Spanish  and  Mexican. 
Two  halves,  four  quarters,  or  teri  dimes,  if  new  and  of  full 
weight,  were  worth  about  2\  cents  more  than  a  gold  dollar. 
Consequently  they  would  be  collected  by  brokers,  melted 
and  exported.  But  two  halves,  four  quarters,  or  ten  dimes, 
that  had  lost  2\  cents'  worth  of  silver  by  abrasion,  would 
circulate,  because  there  would  be  no  motive  to  melt  or  ex- 
port them.  There  would  be  no  profit  in  it.  When  I  was  a 
boy  the  silver  money  of  this  country  consisted  almost  ex- 
clusively of  foreign  coins,  more  or  less  worn,  chiefly  Spanish 
and  Mexican,  but  with  a  considerable  sprinkling  of  English, 
French,  German,  and  Scandinavian  pieces.  Every  merchant 
kept  a  coin  chart  manual  for  handy  reference  to  determine 
the  value  of  these  pieces  as  they  were  offered  in  trade.  I 
have  also  seen  Spanish  quarters  cut  in  half,  each  piece  cir- 
culating £s  a  York  shilling. 

When  the  great  outpouring  of  gold  from  California  and 
Australia  began  in  1848  and  subsequent  years,  the  price  of 
silver  rose  so  that  the  dollar  of  that  metal  was  worth  in  the 
market  $1.04  in  gold.  This  fresh  advance  of  i|  per  cent 
in  the  price  of  silver  carried  still  more  of  those 
coms  out  of  the  country,  i.e.,  all  that  were 
worth  by  weight  more  than  100  cents  per  dol- 
lar in  gold.  So  the  remaining  ones  became  lighter  and 
smoother.  Finally  it  became  apparent  that  if  full-weight 
silver  coins  would  not  circulate  on  the  ratio  of  i :  16,  while 
those  of  light  weight  would  circulate,  it  would  be  safe  to 
make  minor  coins  (halves,  quarters,  etc.)  designedly  of  light 


COINAGE.  35 

weight  on  Government  account,  of  limited  legal  tender. 
There  would  be  no  profit  in  exporting  such  coins,  because 
they  would  not  sell  as  bullion  for  as  much  as  it  would  cost 
to  collect  them. 

Acting  upon  this  principle,  Congress,  in  1853,  passed  a 
law  providing  for  the  coinage  of  new  half  dollars,  quarters, 
dimes  and  half  dimes  about  7  per  cent  lighter  than  the  old 

ones.  These  were  to  be  coined  from  silver 
The  Law  of  1853.  . 

bought  by  the  Government  and  not  otherwise, 

and  were  to  be  sold  to  the  public  at  par,  i.e.,  100  cents 
gold  for  each  100  cents  of  the  new  coins,  although  these 
were  worth  considerably  less,  at  par.  The  new  coins  were 
legal  tender  for  only  five  dollars  in  one  payment.  There 
was  no  longer  any  motive  to  export  the  halves,  quarters, 
etc.,  since  they  could  not  be  collected  for  less  than  100 
cents  per  dollar  and  could  not  be  sold  for  more.  Thus  we, 
in  our  turn,  found  out  that  the  system  suggested  by  Adam 
Smith  in  1776  would  work.  Not  only  would  it  work,  but  it 
has  proved  to  be  the  only  system  that  would  keep  both 
metals  in  circulation  under  all  circumstances.  It  has  proved 
also  to  be  the  system  that  would  call  into  circulation  the 
largest  possible  amount  of  both  gold  and  silver  at  any  one 
time  and  place. 

Such  is  the  underlying  principle  of  a  subsidiary  coinage, 
of  whatever  metal  or  substance  it  may  be  composed.     Our 
silver  dollar,  the  French  five-franc  piece  and  the  German 
thaler  circulate  at  par  on  the  same  principle.     They  are  sub- 
sidiary coins  of  larger  size.     They   are  now 

Principles  of        worth  as  metal  only  one-half  of  their  nominal 

Subsidiary 

Coinage.  value,  but  since  they  are  limited  in  number, 

and  since  the  governments  receive  them  for 
all  public  dues,  they  are  not  depreciated.  Receiving  them 
for  public  dues  is  one  way  of  redeeming  them.  Our  coins, 
smaller  than  one  dollar,  whether  of  silver,  copper,  or  nickel, 


36  MONEY. 

are  redeemable  by  the  Government  in  gold  when  presented 
in  sums  of  twenty  dollars  or  more. 

If  subsidiary  silver  coins  circulate  at  a  value  which  is 
largely  imaginary  the  question  may  be  asked,  why  not  make 
them  of  some  other  metal,  or  even  of  paper? 
Mental111  There  are  no  reasons  except  custom  and  con- 

venience. A  coin  not  heavier  than  a  half  dollar 
is  more  convenient  than  a  piece  of  paper ;  it  is  cleaner,  and 
in  the  long  run  is  probably  cheaper,  as  it  does  not  require 
frequent  renewal.  A  cheaper  coin  might  be  made  out  of 
some  other  metal,  but  it  is  always  best  to  conform  to  the 
habits  of  the  people.  Having  been  born  and  nurtured  in  a 
silver  subsidiary  coinage,  no  good  reason  is  apparent  why 
we  should  depart  from  it. 

Nobody  would  have  ventured,  twenty-five  years  ago,  to 

predict  that  all  the  Ecus  or  five-franc  pieces  of  France  and 

the  thalers  of  Germany  would  continue  to  circulate  at  par 

after  their  metallic  value  had  fallen  one  half. 

the  ECUS  and  the'  Ricardo  had  indeed  laid  down  the  rule  that 

Silver  Dollars  however  debased  a  coinage  may  become  it 
circulate  at  Par.  .„  .  ,  ,  ;.  ,  .  „. 

will  pass  for  the  intrinsic  value  of  the  bullion 

which  it  ought  to  contain,  provided  the  quantity  be  not  ex- 
cessive. This  principle  as  applied  to  paper  money  was 
known  long  before  Ricardo.  We  find  it  in  the  discussions 
on  our  own  colonial  and  continental  currency.  But  the  five- 
franc  pieces  and  the  thalers  were  an  unknown,  immeasurable 
quantity.  Therefore  they  did  not  come  under  Ricardo's 
rule.  There  is  every  reason  to  believe  that  if  the  great  fall 
of  silver  had  come  suddenly  in  the  early  seventies  there 
would  have  been  a  panic  and  a  great  depreciation.  More- 
over everybody  would  have  apprehended  extensive  counter- 
feiting when  the  face  value  of  those  coins  became  much 
greater  than  the  metallic  value.  But  since  the  depreciation 
took  place  gradually  and  imperceptibly  there  was  no  panic 


SPECIMENS  OF  FOREIGN  SILVER  Corns  CIRCULATING  IN  THE 
UNITED  STATES  BEFORE  1860. 


MEXICAN. 


BANK 

TOKEN 
Is.  6n. 


From   Taylor's  Reporter,  Ji*ne  /,  1848, 


SPECIMENS  OF  FOREIGN  SILVER  COINS  CIRCULATING  IN  THE 
UNITED  STATES  BEFORE  1860. 

GERMAN. 


3l/2  Gulden,  #1.32. 


66  cents. 


Thaler,  66  cents. 


Florin,  48  cents. 


Gulden,  36  cents. 
From  Taylor's  Reporter,  June  i,  1848. 


SPECIMENS  OF  FOREIGN  SILVER  COINS   CIRCULATING   IN  THE 
UNITED  STATES  BEFORE  1860. 


SPANISH. 


Specie  Rix  Dollar,  $1.02. 
From  Taylor 's  Reporter,  June  I,  1848, 


SPECIMENS  OF  FOREIGN  SILVER  COINS  CIRCULATING  IN  THE 
UNITED  STATES  BEFORE  1860. 

FRENCH. 


Five  Francs,  93  cents. 


93  cents. 


DUTCH. 


Guilder,  36  cents. 
From   Taylor's  Reporter,  June  I,  1848. 


Guilders,  90  cents. 


COINAGE,  37 

at  all.     Yet   the    condition  is  not  a    satisfactory  one.     It 

would  not  be  chosen  voluntarily.     There  is  a  certain  amount 

of  suppressed  agitation  on  the  subject  in  every 

lot^atirfactory    country  where  it:  exists.     In  France  the  name 
of  "metallic  assignats"  has  been  given  to  the 
five-franc  pieces,  meaning  that  they  have  a  resemblance  to 
the  paper  money  of  the  revolution. 

One  hundred  and  seventy-four  different  varieties  of  foreign 
silver  coins,  besides  many  gold  ones,  circulated  in  the 
United  States  prior  to  1860,  at  their  bullion  value,  which 
were  quoted  in  the  coin  chart  manuals  of  Taylor,  Thompson, 
Nicholas  and  others. 

By  various  acts  of  Congress  beginning  in  1793  and  run- 
ning till  1827,  the  following  foreign  coins,  if  of  full  weight, 
and  no  others,  were  made  legal  tender  in  the 
United  States,  viz.,  the  gold  coins  of  Great 
Britain,  Portugal,  France,  Spain  and  the 
dominions  of  Spain ;  silver,  Spanish  milled  dollars,  and  French 
crowns,  and  the  fractional  parts  thereof.  In  1834,  and  run- 
ning till  1857,  the  following  foreign  coins,  if  of  full  weight, 
and  no  others  were  made  legal  tender  in  the  United 
States,  viz.,  the  gold  coins  of  Great  Britain,  Portugal, 
Brazil,  France,  Spain,  Mexico  and  Colombia  ;  silver,  dol- 
lars (not  the  smaller  coins)  of  Spain,  Mexico,  Peru,  Chili, 
Central  America,  Bolivia,  and  the  five-franc  pieces  of 
France. 

It  was  the  intention  of  Congress  to  give  the  character  of 
legal  tender  only  to  the  silver  dollars  of  Spain  and  the  five- 
franc  pieces  of  France,  but  the  dollars  of  Spain  which  cir- 
culated here  were  mostly  coined  in  the  Spanish-American 
provinces,  and  when  these  countries  achieved  their  inde- 
pendence, it  became  necessary  to  name  them  in  order  to 
avoid  ambiguity.  This  is  the  reason  why  so  many  Ameri- 
can countries  were  named. 


38  MONEY. 


CHAPTER  IV. 

/ 
LEGAL  TENDER. 

THE  phrase  tender,  or  legal  tender,  means  that  in  any 
case  of  dispute  between  parties  touching  the 
fulfilment  of  a  contract,  or  the  payment  of  a 
debt,  or  the  adjustment  of  damages,  the 
debtor  may  deposit  the  thing  which  is  legal  tender  in  Court 
and  receive  his  discharge.  The  legal  tender  thing  may  be 
of  much  or  of  little  value,  or  of  none  at  all. 

The  principle  of  legal  tender  did  not  begin  as  a  piece  of 
conscious  legislation.  As  Aristotle  says,  the  government 
begins,  at  a  time  when  metal  is  circulating  by  weight,  to 
certify  the  weight  and  fineness.  It  stamps  small  ingots  in 
order  to  avoid  the  necessity  of  frequent  weighing.  This  is 
coinage.  Then  people  make  contracts  in  terms 
Tender  LaW°f  °*  ^e  government  coinage,  and  the  govern- 
ment enforces  the  contracts.  Under  Roman 
law  the  creditor  was  obliged  to  take  in  payment  whatever 
the  government  was  coining.  This  principle  appears  not  to 
have  been  questioned  before  the  time  of  Sulla,  although 
there  were  serious  debasements  of  the  coinage  at  different 
times,  and  especially  during  Hannibal's  invasion.  In  the 
Lex  Cornelia,  a  penalty  was  enacted  against  those  who 
should  refuse  the  government's  coins.  Under  Diocletian 
there  was  a  change  of  system.  Gold  was  then  made  to  pass 
by  weight.  In  the  later  Empire,  however,  the  legal  tender 
quality  seems  to  have  been  restored  to  governmental  coins. 
Colonial  Tender  We  have  seen  how  capricious  were  the  tender 
I-aws.  laws  of  the  colonial  period.  Virginia,  for  ex- 

ample, varied  her  practice  in  the  following  manner  : 


LEGAL  TENDER.  39 

Gold  and  silver  the  only  legal  tender. 
1642.       Tobacco  the  only  legal  tender. 

Tobacco,  silver  and  wheat  equally  legal  tender  at 

I6SS. 

fixed  rates. 

Peas,  Indian  corn,  barley,  oats  and  wound  silk 
added  to  the  preceding  articles  as  legal  tender 
at  fixed  rates. 

Tobacco  notes  legal  tender  for  tobacco  debts 
within  the  warehouse  district,  but  not  else- 
where. 

Tobacco  notes  the  sole  legal  tender  for  tobacco 
1730. 

debts  in  the  warehouse  district. 

Silver  legal  tender  for  tobacco  debts  at  a  fixed 
1755. 

rate. 

Maryland  likewise  had  several  varieties  of  legal  tender  in- 
cluding this  : 

Inspected  tobacco  legal  tender  for  debts   at 
one-fourth  higher  rates  than  uninspected. 
The  following  varieties  of  legal  tender  exist  at  the  present 
time  under  the  laws  of  the  United  States : 

Present  Varieties  I-    Gold  coins,   legal   tender  without  any  ex- 
of  Legal  Tender.         press  limit. 

2.  Silver  dollars,  and  Treasury  notes  issued  under   the 
act  of  1890,  legal  tender  "  except  where  otherwise  expressly 
stipulated  in  the  contract." 

3.  United  States  notes  (greenbacks),  legal  tender  except  for 
interest  on  the  public  debt  and  for  duties  on  imports.  '   Since 
the  resumption  of  specie  payments  (1879)  these  notes  have 
been  made  receivable  for  duties  by  Treasury  order,  to  avoid 
the  trouble  of  carrying  gold  to  and  from  the  custom  house. 

4.  National  Bank  notes,  legal  tender  in  payment  of  any 
debt  or  liability  to  any  National  Bank ;  also  receivable  for 
all  Government  dues  except  duties  on  imports,  and  tendera- 
ble  for  all  Government  debts  except  interest  on  bonds. 


40  MONEY. 

5.  Silver  coins  smaller  than  one  dollar,  legal  tender  to 
the  amount  of  ten  dollars  in  one  payment.  Coins  of  nickel 
and  copper,  legal  tender  to  the  amount  of  twenty-five  cents 
in  one  payment. 

If  a  law  of  tender  is  made  applicable  to  debts  contracted 
or  to  bargains  made  before  its  enactment,  and  it  alters 
the  terms  thereof,  it  is  unjust. 

It  is  sometimes  said  that  a  change  in  the  law  of  tender 
exhausts  itself  on  past  debts  ;  that  while 

Injustice  in          people   cannot  avoid  accepting  the  new  legal 

Changes  of  Legal  * 

Tender.  tender  thing  tor  preexisting   dues,    yet   that 

they  straightway  adjust  their  business  and 
bargains  to  the  new  law,  and  thus  escape  further  harm. 
This  is  true  only  of  a  very  small  part  of  the  community. 
The  masses  either  do  not  understand  the  subject  sufficiently, 
or  are  so  enmeshed  in  the  social  fabric  that  they  cannot 
extricate  themselves.  For  example,  no  individual  workman 
can  raise  his  wages  by  his  own  volition  merely  because  his 
cost  of  living  has  increased. 

Gold  and  silver  were  made  full  legal  tender  in  the  United 
States  at  the  ratio  of  i :  15,  on  the  recommendation  of  Ham- 
ilton, in  1792.     The  Spanish  dollar  had  been 

First  Legal  Ten-   declared    the    monetary    unit   of    the   United 

der  under  the 

Constitution.        States  by  the  Congress  of  the  Confederation. 

The  dollars  in  actual  circulation  were  of  two 
different  coinages,  varying  slightly  in  weight  and  fineness, 
and  also  in  the  amount  of  loss  by  abrasion.  Their  average 
weight  was  ascertained  by  Hamilton  to  be  371  grains  of  pure 
silver.  The  commercial  equivalent  of  this  dollar  in  gold 
was  24^0%  grains  of  pure  metal.  This  fact,  and  a  survey 
of  the  market  ratios  of  Europe,  led  him  to  consider  the 
ratio  of  1:15  the  proper  one  to  adopt.  Fifteen  times  24^% 
is  37ij\%,  which  thus  became  the  number  of  grains  of  pure 
metal  in  the  silver  dollar. 


LEGAL   TENDER.  41 

It  turned  out  that  our  new  dollars  were  2^  grains  lighter 
than  new  Spanish  dollars.  A  somewhat  whimsical  result 
followed.  As  our  dollar  was  received  in  trade  in  the  West 
Indies  as  the  equal  of  the  Spanish,  it  became  profitable  to 
send  American  dollars  there  and  to  bring  back  Spanish  dol- 
lars to  be  re-coined  at  our  mint.  There  was  a  profit  of 
about  one  per  cent  in  the  operation.  'So  it 

ResrOtimSiCal  came  aDOUt  that>  altnough  °ur  mint  was  coin- 
ing dollars  as  fast  as  possible,  few  or  none  were 
to  be  found  in  circulation.  We  were  working  for  bullion 
brokers  without  pay.  To  put  an  end  to  this  useless 
expense,  President  Jefferson,  in  1805,  gave  an  order  to  the 
mint  to  stop  coining  dollars,  and  no  more  were  coined  till 
I836.1  There  was  no  law  authorizing  the  President  to  give 
such  an  order,  but  on  the  other  hand  there  was  nothing  in 
the  law  requiring  the  mint  to  deliver  dollars  to  the  depositors 
of  silver  bullion.  A  delivery  of  half-dollars,  quarters,  and 
dimes,  these  being  of  proportional  weight  with  the  dollars, 
was  equally  a  compliance  with  the  law.  It  seems  to  have 
been  Jefferson's  idea  that  by  stopping  the  coinage  of  dol- 
lars a  check  would  be  put  to  this  traffic,  it  being  more 
troublesome  to  handle  two  half-dollars  than  a  whole  one. 
If  this  was  his  conception,  he  was  mistaken.  The  half-dol- 
lars ran  away  as  briskly  as  the  dollars  had  formerly  done. 
Our  circulation  continued  to  be  filled  with  abraded  Spanish 
silver  coins. 

The  first  change  in  our  legal  tender  act  was  made  in  1834 
and  1837  when  the  standard  weight  of  the  gold  dollar  was 
fixed  at  25T8o  grains  and  the  standard  fineness 
nine-tenths.     Under  this  law   the    fine   gold 
in  the  dollar  was  23^$$  grains.     The  standard 
weight  of  the  silver  dollar  was  fixed  at  412^/2  grains,  but  the 
amount  of  fine  silver  in  it  remained  unchanged.     The  new 

1  Laughlin's  Bimetallism,  page  53. 


42  MONEY. 

ratio  was  approximately  as  i :  16.  We  were  then  practically 
on  the  silver  basis  and  had  been  so  for  a  long  time,  the  pre- 
mium on  gold  in  the  market  being  4^  per  cent.  Anybody 
having  $100  gold  could  buy  $104.50  silver  to  pay  his  debts 
with.  Neither  the  statute  law  nor  the  moral  law  offered  any 
objection  to  this,  because  it  was  a  part  of  every  bargain.  The 
government  never  promised  to  hold  the  market  ratio  of  the 
metals  steady  at  1:15.  This  had  come  in  the  course  of 
time  to  be  1:15.625.  Under  the  new  law  anybody  having 
$100  silver  could  buy  $102.25  g°ld  to  pay  his  debts  with. 
In  other  words  the  standard  was  debased  2^  per  cent. 
The  law  of  1834  ought  to  have  provided  that  preexisting 
contracts  should  be  settled  on  the  preexisting  basis. 

The  law  of  tender  adds  nothing  to  the  value  of  gold. 
The  early  gold  coins  of  California  were  not  legal  tender,  yet 

those  which  were  of  equal  weight  and  fineness 
The  Law  of  Ten-       ..  &, 

der  adds  Nothing  wltn  government  coins  were  of  equal  value. 

to  the  Value  of  The  thalers  of  the  Count  of  Schlick  were  not 
legal  tender  anywhere,  yet  they  circulated  all 
over  Europe  and  were  more  freely  received  than  Govern- 
ment coins,  because  they  were  more  uniform  in  quality. 
The  Spanish  dollar  was  not  legal  tender  for  eight  shillings 
in  the  colony  of  New  York,  yet  it  was  always  good  in  trade 
at  that  rate. 

Perhaps  the  most  decisive  test  of  the  proposition  we  are 

considering  is  furnished  by  the  experience  of  France,  while 

John  Law  had  control  of  her  finances.     On  the 

Proof  of  this  in      nth  of  March,  1720,  in  order  to  sustain  the 
the  History  of  r  ,.         .    . 

France.  value  of  paper  money,  an  edict  or  the  govern- 

ment was  promulgated  that  after  the  first  of 
May  gold  should  no  longer  be  used  in  the  payment  of  debts, 
nor  silver  after  the  first  of  August,  and  that  no  more  of  either 
metal  should  be  coined.  "Thus,"  says  a  recent  history,1 

1  France  under  the  Regency,  by  James  Breck  Perkins,  p.  491. 


LEGAL   TENDER.  43 

"  France  for  a  short  time  enjoyed  the  distinction  of 
being  the  one  civilized  country  where  a  man  could  not 
pay  his  debts  with  gold  or  silver,  a  state  of  affairs  which 
had  no  parallel  since  mankind  passed  from  the  era  of  barter 
and  chose  the  precious  metals  as  trie  medium  of  exchange." 
This  edict  was  enforced  by  all  the  power  of  a  despotic  gov- 
ernment, but  the  value  of  the  metals  was  not  lessened  in  the 

slightest    degree,    while    that    of    the    paper 
Value  of  Pre- 
cious Metals  not    money    went    downward    faster    than   before. 

lessened  by  Tne  decree  was  in  operation  only  one  month. 

Demonetization.     _  .         , 

Other  decrees  of  like  nature  were  enacted  and 

proved  equally  futile.  In  the  course  of  fifteen  months  the 
value  of  gold  was  changed  twenty-eight  times  and  that  of 
silver  thirty-five  times  ;  that  is,  the  government  decreed  these 
changes  and  sought  to  enforce  them,  but  succeeded  only  in 
cheating  individuals. 

The  Mint  at  Philadelphia  has  upwards  of  sixty  varieties 
of  private  gold  coins  which  circulated  in  the  United  States 
at  one  time  and  another.  They  were  manufactured  in  North 
Carolina,  Georgia,  Oregon,  California,  Utah,  and  Colorado, 
and  were  not  legal  tender.  Examples  of  these  private  coins 
are  shown  in  the  frontispiece,  viz.  : 

1.  Coined  by  Templeton  Reid  of  Georgia.    Value  about  $5.00. 
Mr.  Reid  afterward  removed  his  coining  apparatus  to  California. 

2.  Bechtler  Mint  at  Rutherfordton,  N.  C.     Value  about  $4.90. 

3.  Letters  over  the  figure  of  a  beaver  are  the  initials  of  the 
persons  composing  the  Oregon  Exchange  Co.    Value  about  $4.84. 

4.  Letters  J.  S.  O.  mean  J.  S.  Ormsby,  the  coiner  of  these 
pieces.     Value  $9.37. 

5.  Mormon  Coin.    Letters  above  the  clasped  hands  mean  Great 
Salt  Lake  City  Pure  Gold.     Value  $4.36. 

6.  Pike's  Peak  (Colorado)  Coin.     Value  not  known. 

7.  Ingot  of  Moffat  &  Co.,  San  Francisco.     Value  $16.00. 


BOOK    II. 
THE  GOLD  STANDARD. 


CHAPTER    I. 

EXPERIENCE  OF  ENGLAND  AND  THE  UNITED  STATES. 

THE  single  gold  standard  is  the  most  important  fact  in 
financial  science  and  the  one  over  which  the  hottest  con- 
troversy now  rages. 

In  the  i  ;th  and  i8th  centuries  most,  if  not  all,  civilized 

countries  employed  both  gold  and  silver  as  money  of  full 

legal  tender,  intending  to  use  them  simultaneously  but  really 

using  them  alternately.    The  use  of  two  metals 


Condition  during  requires,   as   has   been    already  said,  a 

tnemnandisth        .     , 

Centuries.  ratio  between  them,  giving  debtors  the  option 

of  paying,  for  example,  either  i  ounce  of 
coined  gold  or  15^  ounces  of  coined  silver,  for  an  equal 
sum,  the  mints  being  open  at  all  times  to  the  coinage  of 
either  metal  in  unlimited  amounts  for  private  persons. 
Concurrent  circulation  of  the  two  metals  can  continue  only 
so  long  as  the  market  ratio  coincides  with  the  legal  ratio. 
When  i  ounce  of  gold,  as  in  the  example  cited,  comes  to  be 
worth  a  little  more  than  15^  ounces  of  silver,  gold  will  be 
withdrawn  from  circulation,  sold  for  silver,  and  the  premium 
pocketed.  If  the  market  ratio  turns  the  other  way  silver 
will  be  withdrawn  and  gold  will  be  retained.  The  monetary 
history  of  nations  consists  mainly  of  these  changes  and  of 
the  recoinages  to  which  they  led. 


ENGLAND  AND   THE  UNITED  STATES.  45 

Prior  to  the  year  1871  the  only  countries  that  had  the 
single  gold  standard  were  Great  Britain  and  her  colonies, 

Portugal,    Turkey,   Brazil  and  the    Argentine 
Condition  in  1870.  _,        *  m  i_-   ,    i      ,     i        .      ,       ., 

Republic.      1  hose  which  had  the  single  silver 

standard  were  Germany,  Holland,  the  Scandinavian  coun- 
tries, Austria,  Russia,  Egypt,  Mexico,  Japan,  India,  China, 
Central  America,  Bolivia,  Ecuador  and  Peru.  All  the  coun- 
tries not  named  in  either  of  these  lists  had  the  bimetallic 
system,  or  double  standard.  Nearly  all  have  changed  to 
the  single  gold  standard,  having  been  moved  thereto  by  ex- 
perience. 

The  first  nation  to  do  so  was  England.  This  step  was 
really  taken  in  1798,  although  the  date  usually  assigned  to 
it  is  1816. 

The  pound  sterling  was  originally  a  pound  weight  of  silver, 
divided  into  twenty  parts  called  shillings,  and  each  of  these 
into  twelve  parts  called  pennies,  or  penny- 

weiShts-  Gold  made  its  first  appearance  in 
the  coinage  of  England  in  the  reign  of 
Edward  III.  (A.D.  1345).  The  ratio  of  gold  to  silver  fixed 
by  royal  decree  in  this  coinage  was  about  12^  to  i. 

From  this  period  to  the  forty-third  year  of  the  reign  of 
Elizabeth  there  were  nine  debasements  of  the  silver  coinage 
accompanied  by  changes  in  the  gold  coinage,  but  as  these 

were  arbitrary  acts  of  the  reigning  sovereigns 
Arbitrary  De- 
basements of  the   tney  possess    no  scientific   interest.     In   the 

coinage  in  Early  forty-third  of  Elizabeth  (1601)  the  last  de- 
basement was  made.  The  pound  weight  of 
silver  was  then  coined  into  sixty-two  shillings,  and  the 
pound  of  gold  into  thirty-three  and  one-half  sovereigns  of 
seven  pennyweights  and  four  grains  each,  the  ratio  of  gold 
to  silver  being  n  to  i.  The  silver  coinage  being  hence- 
forth unchanged,  it  becomes  possible  to  trace  the  commer- 
cial variations  of  the  two  metals  and  to  observe  the  ineffec- 


46  MONEY. 

tual  struggles  of  society  and  government  to  keep  both  of 
them  in  use  as  legal-tender  money. 

Queen  Elizabeth  died  two  years  later.  Before  her  suc- 
cessor, James  I.,  had  been  on  the  throne  three  years,  gold 
had  risen  in  value  as  compared  with  silver,  and  the  gold 
coins  were  exported  to  such  an  extent  that  it  was  necessary 
to  diminish  their  weight  about  1 1  per  cent.  The  ratio  now 
established  was  a  little  more  than  12  to  i. 

In  the  ninth  year  of  the  same  reign  the  gold  coin  began 
to  be  exported  again,  so  that  it  was  necessary  to  make  a  new 

change  of  ratio.  This  time  the  ratio  was  fixed 
Commercial 

Variations  of  at  13  to  i.  But  this  was  too  great  an  ad- 
Metals  under  vance  in  the  rating  of  gold.  An  exportation 

of  silver  set  in,  which  caused  great  incon- 
venience in  the  kingdom.  Instead  of  readjusting  the  ratio, 
the  king,  in  the  year  1614,  issued  a  proclamation  pro- 
hibiting the  exportation  of  the  precious  metals.  The 
proclamation  had  no  effect.  So  another  one  was  issued  in 
1618,  reaffirming  the  first  one  and  forbidding  the  melting  of 
coin  for  the  purpose  of  making  plate,  although  a  certain 
amount  might  be  used  for  repairing  old  plate  and  keeping  it 
up  to  its  original  standard.  As  the  evil  continued,  a  third 

proclamation  was  issued  in  1622,  and  a  fourth 
Proclamations  jn  l(>2^  None  of  these  had  any  effect  except 
porters.  to  make  a  record  of  the  futility  of  attempts  to^ 

enforce  a  legal  ratio  which  is  different  even 
in  a  slight  degree  from  the  market  ratio.  It  was  customary 
during  this  period  to  pay  a  premium  of  two  pence  for  silver 
change  to  the  amount  of  twenty  shillings. 

Soon  after  Charles  I.  began  his  reign,  he  issued  a  procla- 
mation on  the  same  subject,  reciting  the  previous  ones  of 
his  father  and  acknowledging  that  they  had  been  disre- 
garded. In  1636  seven  persons  accused  of  melting  and 
exporting  coin  were  arrested  and  fined  £8,500,  and  im- 


ENGLAND  AND   THE  UNITED  STATES.  47 

prisoned  till  the  fines  were  paid,  but  even  this  example  did 
not  put  a  stop  to  the  practice.       Silver  was 

Proclamations      worth  two  or  three  pence    per   ounce    more 
and  Punishments    , 

Ineffectual.  tnan  tne  mmt  valuation,  and  this  fact  domi- 
nated the  whole  nation.  But  what  could  not 
be  prevented  by  royal  proclamation  and  star  chamber  was 
stopped  by  an  unseen  force.  The  price  of  gold  was  slowly 
rising,  so  that  about  the  beginning  of  the  Commonwealth, 
the  ratio  that  King  James  had  established  was  identical,  or 
nearly  so,  with  the  market  ratio.  The  exportation  of  the 
precious  metals  ceased  until  the  reign  of  Charles  II. 

In  1663  gold  had  risen  in  value  so  that  it  was  necessary 
to  change  the  ratio  to  14^  to  *.  This  was  an  advance  of 
about  8  per  cent  since  James  I. 

Each  time  that  a  change  was  made  in  the  gold  coinage  a 
new  name  was  given  to  the  coin  so  produced,  in  order  to 
distinguish  it  from  its  predecessors.  The  coin  that  Charles 
II.  now  introduced  was  called  the  guinea.  It  was  ordered 
that  this  coin  should  pass  for  twenty  shillings,  but  it  imme- 
diately became  current  in  trade  at  a  higher 

First  Appear-       rate,    passing    for    twenty-one    to    twentv-two 

anceoftie  .....   * 

Guinea.  shillings.     No  attempt  was  made  to  enforce 

the  mint  valuation  or  to  prevent  melting  or 
exporting.  Consequently  silver  became  in  practice  the 
only  legal-tender  money.  Nobody  would  offer  a  guinea  to 
pay  a  debt  of  twenty  shillings  when  it  was  worth  twenty-one 
shillings.  The  guineas  passed  for  what  they  were  worth  as 
bullion.  That  was  a  time  when  the  clipping  of  coin  was 
much  practiced,  but  it  was  no  advantage  to  clip  a  gold  coin, 
since  it  was  taken  only  at  its  bullion  value.  The  silver 
coins,  however,  passed  by  tale.  Consequently  they  were 
subjected  to  the  clipping  process.  The  evil  became  so 
great  that  a  re-coinage  of  silver  was  necessary,  and  was 
undertaken  in  the  reign  of  William  III.  This  was  a  cele- 


48  MONE  Y. 

brated  event  in  many  ways.     Both  Sir  Isaac  Newton  and 

John    Locke  were    concerned  in   it.     In  the 

1J1®*®"coilia8rc     year  1717  the  guinea  was  made  current  by 

royal  proclamation  at  twenty-one  shillings  in 

silver,  at  which  figure  the  ratio  was  about  15^  to  i.     This 

was  in  the  third  year  of  the  reign  of  George  i . 

"  It  was  about  this  time,"  says  Lord  Liverpool,  "  that  a 
marked  preference  was  shown  by  the  people  for  gold  money 
rather  than  silver,  on  account  of  its  convenience  in  making 
large  payments."  This  he  ascribes  to  the  increase  in  the 
commerce  of  the  country.  As  gold  was  slightly  overrated 
at  the  ratio  of  15}  to  i,  there  was  a  tendency 

Renewed  Ex-       to  export  silver.     Only  £584,000  of  the  latter' 
portation  of  Sil- 
ver, metal  was  brought  to  the  mint  for  a  period  of 

eighty-three   years    down    to  the  end  of  the 
century,  and  most  of  this  came  from  Spanish  treasure  ships 
captured  in  war.     The  only  silver  coin  retained  in  circula- 
tion was  that  which  had  been  much  worn.     As  these  light- 
weight pieces  varied  among  themselves,  the 

Only  Light  Sil-    lightest  ones  were  selected  to  make  payments, 
var  Pieces  re- 
main, a  condition  which  became  worse  and  worse 

until  Parliament,  in  1774,  passed  an  act  limit- 
ing the  legal  tender  of  silver  coins  to  £25  in  tale.  For 
any  sum  above  £25  they  could  be  paid  by  weight  only. 
This  act  was  to  continue  in  force  only  two  years,  the  expec- 
tation being  that  some  other  remedy  for  the  evil  would 

shortly   be   found.     It    was    reenacted   from 

Silver  first  De-     time  to  time  till   1798,  when  another  clause 
monetized  for  ...  ., 

this  Reason.          was    added,    providing    that   no    more    silver 

should  be  coined  at  the  mint,  nor  should  any 
be  delivered  that  had  been  coined,  but  that  the  owners  of 
such  silver  should  be  paid  for  it.  In  the  following  year 
(1799)  a  brief  act  was  passed  making  the  act  of  1774 
perpetual.  In  1816  the  character  of  the  British  monetary 


ENGLAND  AND   THE  UNITED  STATES.  49 

system  was  formulated  by  an  act  of  Parliament  on  its  pres- 
ent basis,  the  essential  part  of  this  act  being  in  the  follow- 
ing words : 

"  XL  And  whereas  at  various  times  heretofore  the  coins 
of  this  realm  of  gold  and  silver  have  been  equally  a  legal 
tender  for  payments  to  any  amount,  and  great  inconvenience 
has  arisen  from  both  those  precious  metals  being  concurrently 
the  standard  measure  of  value  and  equivalent  for  property ; 
and  it  is  expedient  that  the  gold  coin  made 

Gold  standard      according    to    the    indentures    of    the    mint 
made  Permanent     .       ...  .      .    .       . 

in  1816.  should  henceforth  be  the  sole  standard  meas- 

.  ure  of  value  and  legal  tender  for  payment, 
without  any  limitation  of  amount,  and  that  the  silver  coin 
should  be  a  legal  tender  to  a  limited  amount  only,  for  the 
facility  of  exchange  and  commerce  : 

"Be  it  therefore  enacted,  That  from  and  after  the  passing 
of  this  act,  the  gold  coin  of  this  realm  shall  be  and  shall  be 
considered  and  is  hereby  declared  to  be  the  only  legal  ten- 
der for  payments,  except  as  hereinafter  provided, 
and  no  tender  of  payment  of  money  made  in  the  silver  coin 
of  this  realm  of  any  sum  exceeding  the  sum  of  forty  shillings 
at  any  one  time,  shall  be  reputed  a  tender  in  law,  etc." 

This  is  a  brief  resume  of  the  experience  and  legislation 
of  Great  Britain.  It  is  important  as  showing  that  the  single 
gold  standard  was  adopted  on  account  of  the  "  great  incon- 
venience "  of  the  double  standard,  which  had  been  in  vogue 
previously.  Of  course,  this  "  inconvenience  " 
John  Locke  had  attracted  the  attention  of  learned  men 

Double  Standard,  before  1798.     John  Locke  had  shown  that  a 

double    standard  composed  of   two  things  of    ^ 
varying  value  was  an  impossibility.     He  favored  the  single 
standard  of  silver,  as  did  the  learned  men  who  considered 
the  same  question  in  France  a  century  later. 

It  appears  that  the  gold  standard  was  adopted  without 


50  MONE  Y. 

any  particular  design  on  the  part  of  those  who  brought  it 
about.  They  found,  as  a  matter  of  fact,  that  the  monetary 
evils  existing  in  1774  could  be  cured  most  readily  by  limit- 
ing the  legal  tender  of  silver.  So  they  did  it  for  two  years, 

and  then  for  two  years  more,  and  so  on,  till 
The  Change 
made  to  promote    T  79^-99,  when  they  had  become  satisfied  by 

the  Public  Con-  the  experience  of  twenty-five  years  that  the 
venience.  . 

single  gold  standard  was  the  right  thing  to 

put  an  end  to  the  "inconvenience."  Seventeen  years  later, 
the  experiment  having  continued  to  be  successful,  they 
passed  the  law  which  I  have  quoted.  That  law,  in  sub- 
stance, remains  in  force  to  the  present  time,  and  we  may  be 
sure  that  it  would  not  have  lasted  so  long  if  it  were  not  a 
good  thing  per  se. 

The  United  States  adopted  the  double  standard  of  gold 
and  silver  in  1792.     In  this  matter  our  statesmen  followed 
the  example  of  the  older  countries  of  Europe.     At  Hamil- 
ton's instance,  the  ratio  of  15  was  adopted, 

Experience  of       ancj  there  is  no  room  to  doubt  that  this  was 

the  United 

States.  very  close  to  the  true  market  ratio  at  the  time. 

Nevertheless,  gold  began  to  grow  scarce  in 
our  circulation  as  early  as  1810,  and  had  wholly  disap- 
peared in  1817.  One  ounce  of  gold  had  come  to  be  worth 
as  metal  something  more  than  fifteen  ounces  of  silver.  It 
was  worth  while  for  bullion  brokers  to  collect  gold  coins 
and  export  them. 

Mr.  Raguet  wrote  to  the  National  Gazette  in   1820  to  ex- 
plain the  reason  for  "  the  disappearance  of  gold  from  the 

United   States."     Two  years  later   he  wrote 

Eeary DiSafP~  again  °n  the  Same  subJect>  saving  "that 
Gold.  although  the  coinage  of  gold  continued  to  be 

large  ($1,319,030  in  1820),  not  a  gold  coin 
was  anywhere  to  be  seen  in  circulation."  The  facilities  of 
the  mint  were  simply  used  by  merchants  to  certify  the 


ENGLAND  AND  THE  UNITED  STATES.  51 

weight  and  fineness  of  gold  for  exportation.  There  were 
stirrings  in  Congress  on  the  subject  of  a  change  of  ratio  as 
early  as  1818.  Various  projects  were  brought  forward. 
Scarcely  a  session  passed  without  some  movement  in  one 
House  or  the  other.  In  1834  the  Gold  Bill, 

Movements  in       as  it  was  termed,  was  reported  by  a  special 

Congress  to  re-  .  .    .      TT  r      .  .  ,  ' 

cover  it.  committee  or  the  House,  of  which  Mr.  Camp- 

bell P.  White,  of  New  York,  was  chairman. 
The  debates  and  the  newspaper  discussions  show  that  there 
were  three  considerable  forces  at  work  to  promote  the  pas- 
sage of  the  Gold  Bill.  One  was  the  desire  to  Jiave  gold 
again  in  circulation.  This  desire  found  apt  expression  in 
the  words  of  Thomas  H.  Benton,  who  declared  that  the 
object  of  his  endeavors  was  : 

"To  enable  the  friends  of  gold  to  go  to  work  at  the  right 
place  to  effect  the  recovery  of  that  precious  metal  which 
their   fathers  once  possessed,   which    the    subjects    of   the 
European  kings  now  possess,  which  the  citi- 
6        zens  of  the  young  republics  to  the  south  all 


possess,  which  even  the  free  negroes  of  San 
Domingo  possess,  but  which  the  yeomanry  of  this  America 
have  been  deprived  of  for  more  than  twenty  years,  and  will 
be  deprived  of  forever  unless  they  discover  the  cause  of  the 
evil  and  apply  the  remedy  to  its  root." 

The  production  of  gold  in  the  Southern  States  had  risen 

from  $5,000  in  1824  to  $868,000  in  1833,  and 

%£££?«  the  belief  was  genera»y  entertained  that  if 

Ratio  in  1834.  the  mint  valuation  of  gold  were  raised,  it 
would  give  the  producers  of  that  metal  a 
pecuniary  advantage.  In  other  words,  it 

Southern  Gold  would  serve  as  a  measure  of  "  protection  "  to 
that  industry.  This  was  an  entire  mistake, 

but  it  had  a  considerable  influence  in  promoting  the  passage 

of  the  Gold  Bill. 


52  MONEY. 

The  third  impelling  force  was  the  bank  controversy  then 
raging.  This  was  largely  a  party  question,  the  supporters 
of  President  Jackson  being  generally  supporters  of  the  Gold 
Bill.  The  silver  standard,  it  was  contended, 
Promoted  the  circulation  of  bank  notes  be- 
cause silver  was  bulky  and  heavy.  The  gold 
standard,  on  the  other  hand,  would  curtail  bank-note  circu- 
lation because  gold  was  easily  handled.  Hence  the  oppo- 
nents of  banks,  and  especially  of  the  Bank  of  the  United 
States,  were  in  favor  of  the  Gold  Bill. 

The  Bill,  as  reported  to  the  House  by  Mr.  White,  pro- 
vided for  a  ratio  of  i  115.60,  but  when  it  came  up  for  dis- 
cussion, Mr.  White  moved  an  amendment  making  the  ratio 
i  :  1 6  ;  and  this  amendment  was  adopted  without  a  division. 
Then  another  amendment  was  offered  making  the  ratio 

i:ic;.62t;,    and    it    was    supported    on    the 
Law  of  1834. 

ground  that  it  was  the  true  market  ratio,  and 

that  it  would  keep  gold  and  silver  in  concurrent  circulation. 
The  adoption  of  the  ratio  of  i  :  16,  it  was  contended,  would 
drive  silver  out  of  circulation.  Nevertheless,  the  amend- 
ment was  voted  down  —  yeas,  52  ;  nays,  127.  The  Bill  was 
then  passed  in  the  House  by  145  to  36,  and  in  the  Senate 
by  35  to  7. 

It  was  perceived  on  both  sides  that  the  passage  of  the 
bill  would  make  the  United  States  a  gold-standard  country 
in  practice.  Why,  then,  was  the  double  standard  retained 
in  theory?  One  reason  was  that  a  great  many  contracts 
were  in  existence,  such  as  ground  leases  and 
reTainef^Tte-  bonds  and  mortgages,  expressly  calling  for 
ory,  trat  dis-  payment  in  silver.  Another  was  that  the  smal- 
carded  in  Prac-  ler  coins  (halves,  quarters,  and  dimes)  were  of 
proportional  weight  with  the  dollar.  These, 
it  was  thought,  could  not  be  dispensed  with,  the  principles 
of  a  subsidiary  coinage  being  then  imperfectly  understood. 


ENGLAND  AND   THE  UNITED  STATES.  53 

So  the  double  standard  was  retained  in  law  although  dis- 
carded in  practice. 

Under  these   circumstances,  the  gold   standard  existing 

de  facto,  and  there  being  no  silver  except  light-weight  subsid- 

iary coins,  our  mint  authorities,  the  only  people  who  took 

any  interest  in  the  subject,  began  even  before 

Mr.  Pollock's       the  war  to  recommend  that  the  single  gold 
Recommenda-  .  .      , 

standard  should  be  adopted  in  law  as  it  had 


been  adopted  in  fact.  Ex-Governor  Pollock, 
Director  of  the  Mint,  in  his  report  for  1861,  called  attention 
to  the  incongruity  of  a  silver  dollar  that  was  worth  2.98 
cents  more  than  the  gold  dollar,  and  8  cents  more  than 
two  half-dollars.  He  recommended  that  it  should  either  be 
dropped  from  the  list  of  coins  or  reduced  in  weight  so  as  to 

correspond   with   the    subsidiary   coins.     He 

Law  of  1873. 

considered  that  gold  was  de  facto  the  standard 
of  value,  and  he  recommended  that  the  law  should  conform 
to  the  fact.  But  the  nation  had  more  exciting  topics  to  dis- 
cuss in  1861  than  those  relating  to  coinage.  In  1866,  after 
the  war,  Mr.  John  J.  Knox,  who  then  had  charge  of  the 
Mint  and  coinage  matters  in  the  Treasury  De- 
Partment>  recommended  a  revision  of  all  the 
laws  relating  to  the  Mint.  Secretary  Bout- 
well  approved  of  the  suggestion.  Mr.  Knox  and  Dr. 
Linderman  were  appointed  in  1869  a  committee  to  make 
such  revision.  They  presented  their  report  with  a  draft  of 
a  bill  in  1870.  The  report  recommended  the  discontinuance 
of  the  silver  dollar,  this  coin  being  obsolete. 

The  bill  and  report  were  transmitted  to  the  Finance  Com- 
mittee of  the  Senate  on  the  25th  of  April,  1870.  The  bill 
passed  the  Senate  on  the  loth  of  January,  1871.  It  made 
,the  gold  dollar  a  unit  of  value  and  it  dropped  the  silver 
dollar  from  the  list  of  coins.  The  bill  failed  in  the  House 
for  want  of  time.  The  forty-first  Congress  having  expired 


54  MONEY. 

without  final  action,  it  came  up  again  in  the  Forty-second. 

It  passed  the  House  May  27th,  1872,  by  yeas  no,  nays  13. 

It  passed  the  Senate  January  17,  1873,  without  a  dissenting 

vote.     The  metal  in  the  silver  dollar  at  that 

The  False  Charge  time   was   worth    two    cents    more    than    the 

that  it  was  passed 

surreptitiously.    g°l«  dollar.     No  objection    to   the    bill  was 

heard  until  the  price  of  silver  had  fallen  so 
that  the  silver  dollar,  if  there  had  been  any,  would  have 
been  worth  less  than  the  gold  dollar.  Then  it  became 
fashionable  to  say  that  the  bill  was  passed  surreptitiously. 
The  truth  is,  that  the  bill  was  before  Congress  two  years  and 
ten  months,  that  it  was  printed  thirteen  times  by  order  of 
Congress,  that  the  debates  on  it  occupy  sixty-six  columns 
in  the  Senate  proceedings  and  seventy-eight  columns  in  the 
House  proceedings,  and  that  the  discontinuance  of  the 
silver  dollar  was  specially  discussed  in  the  House.  The 
reason  why  the  discontinuance  of  the  silver  dollar  attracted 
so  little  notice  was  that  this  coin  had  been  discontinued 
de  facto  in  1834,  when  the  ratio  of  16  to  i  was  adopted.1 

Let  us  imagine  for  a  moment  that  silver  had  not  fallen  in 
price  after  1873.  Would  anybody  ever  have  missed  the 

silver  dollar  ?     Would  anybody  have  doubted 
Congress  merely 
gave  the  Form  of  that  the  gold  standard  was  brought  about  in 

Law  to  an  Exist-  this  country  by  natural  causes  operating  upon 
men's  minds  in  the  same  way  as  it  was  in 
England,  the  action  of  Congress  in  1873  merely  giving 
the  form  of  law  to  what  had  been  done  practically  at  an 
earlier  period  ? 

As  the  act  of  1873  has  not  been  repealed  or  modified  it 
follows  that  the  United  States  are  on  the  single  gold 
standard. 

1  The  so-called  "crime  of  1873"  will  be  considered  at  length  in  a 
subsequent  chapter. 


EXPERIENCE  OF  GERMANY  AND  FRANCE.  55 

CHAPTER  II. 

EXPERIENCE  OF  GERMANY  AND  FRANCE. 

IN  the  year  1857  the  states  composing  the  German  Zoll- 

Verein  and  the  Empire  of  Austria  entered  into  a  monetary 

treaty  by  which  they  adopted  the  single  silver 

Germany  adopted  standard.     In    the    preliminary    conferences, 

the  Silver  Stand-    .          ..,,., 

ard  in  1857.          Austria  had  desired  to  adopt  the  gold  stand- 
ard, but  her  wishes  had  been  defeated  in  a 

whimsical  manner  which   is  thus    described    by    Professor 

Lotz  of  the  University  of  Munich  : 

"  Some  German  states,   jealous  of  their   sovereignty,  of 

which  they  believed  their  mint  policy  to  be  the  most  intimate 

part,  strongly  opposed  the  adoption  of  the  gold  standard. 

Their  chief  argument   can   only  be   regarded  now  as  very 
unimportant.     They  maintained  that  the  con- 

Whimsicai  sequence  of  the  adoption  of  the  gold  standard 

Reason  for 

doing  so.  would  have  been   a  recomage  of  the  silver 

currency  into  subsidiary  coin.  Now  it  would 
have  been  necessary,  for  technical  reasons,  to  concentrate 
such  coinage  in  one  or  two  great  mints.  But  this  concen- 
tration, at  that  time,  appeared  impossible  to  the  smaller 
states  without  seriously  threatening  their  sovereignty."  l 

Thus  from   1857   to   1871  Germany  had  the  single  silver 
standard,  but  as  she  could  not  transact  business  with  silver 

alone,    she    used   for   her    international    and 

Her  Heteroge-       wholesale  trade  a  heterogeneous  assortment  of 

neons  Metallic  ° 

Money.  gold  coins,  partly  domestic  and  partly  foreign, 

including  napoleons,  pistoles,  guineas,  eagles,  Russian  im- 
perials,  Friedrichs  d'or,   ducats,   crowns,    etc.,    passing    as 

1 "  The   Monetary   Situation    in  Germany,"    in    the    Annals    of  the 
American  Academy  of  Political  and  Social  Science,  Phila.,  July,  1893. 


56  MONEY. 

commercial  money.  The  question  of  a  reform  of  the 
currency  had  been  under  discussion  by  the  economists  and 
publicists  of  Germany  for  nearly  ten  years,  but  until  1868 
the  question  under  debate  was  a  question  of  uniformity  of 
money  rather  than  of  the  metallic  standard.  "  The  chief 
problem,"  says  Professor  Lotz,  "was  to  unify  the  seven  dif- 
ferent monetary  systems  which  existed  till  1873.  Compared 
with  this,  the  question  how  to  get  rid  in  some  way  of  the 
inconveniences  of  the  then  prevailing  silver  standard,  was 
only  of  secondary  importance." 

In  addition  to  this  great  variety  of  coinage,  due  for  the 
most  part  to  the  spirit  of  particularism,  there  were  state 

notes  and  bank  notes  in  circulation  to  the 
Mone  aPCr  amount  of  700,000,000  marks,  of  varying 

degrees  of  goodness  and  different  rates  of 
discount.  The  losses  caused  by  the  discount  on  the  paper 
money  in  circulation  and  the  bother  of  the  heterogeneous 
silver  money,  made  the  monetary  situation  insupportable. 

Dr.  Soetbeer  had  published  two  articles  in  1863  and  1864 
on  the  gold  standard,  but  it  was  not  until  after  the  Paris 
Monetary  Conference  of  1867  that  the  commercial  classes 
began  to  take  an  active  interest  in  the  question.  After  this 
event  a  great  many  publications  appeared  in  Germany 

showing    an    unmistakable    tendency   in    the 

Agitation  for       public  mind  to  the  gold  standard.     The  most 

the  Gold  Stand-  ,     .  .       . 

ard.  important   of  these   is   the   report  which  Dr. 

Soetbeer  made  at  the  Ninth  Congress  of  Ger- 
man Economists  in  the  year  1868.  This  Congress  met  in 
Hamburg  and  pronounced  in  favor  of  the  unification  of 
German  money,  and  of  the  gold  standard.  Its  action  was 
ratified  soon  afterward  by  the  Handelstag,  the  united  com- 
mercial bodies  of  the  North  German  Confederation,  and 
would  have  been  carried  into  effect  at  once  but  for  the  war 
with  France.  This  event  postponed  the  reform  one  year. 


EXPERIENCE  OF  GERMANY  AND  FRANCE.  57 

On  the  5th  of  November,  1871,  the  Finance  Minister  of 
the  new  German  Empire,  Herr  Delbriick,  presented  to  the 
Imperial  Diet  a  brief  report  of  the  "  motives  "  which  had 
led  the  government  to  propose  a  measure  for  the  unification 
of  the  German  coinage.  This  measure  provided  for  the 
coinage  of  gold  pieces  of  ten  and  twenty  marks,  and  it  dis- 
continued the  coinage  of  silver  on  private  account,  but  did 
not  demonetize  the  thalers,  or  three-mark  pieces,  that  were 
in  circulation.  The  report  says,  first  of  all,  that  it  may  be 
considered  as  beyond  doubt  that  the  existing  silver  standard 
cannot  be  maintained.  The  only  gold  coins  authorized  by 
existing  law  were  German  crowns  and  half- 

ofTs?iaryLaW  crowns>  but  tnese  nad  no  fixed  relation  to 
the  standard  silver  coins  of  the  nation  nor  to 
those  of  any  other  country.  Consequently  they  were  not 
accepted  in  the  domestic  circulation.  They  had  never  been 
an  integral  part  of  it,  nor  had  they  acquired  any  standing  in 
international  commerce,  being  melted  down  as  soon  as  they 
reached  the  frontier.  Consequently  the  internal  commerce 
of  Germany  was  confined  to  the  use  of  bulky  and  incon- 
venient silver  coins.  "  The  inconvenience  of  silver  coins," 
says  the  report,  "led  of  necessity  to  a  very  considerable 
circulation  of  paper,  which,  in  ordinary  times,  is  taken  as  a 
welcome  facility,  but  in  critical  times  contains  the  germs  of 
serious  dangers.  The  artificial  demand  for  paper  created 
by  the  exclusive  circulation  of  silver  made  it  almost  impos- 
sible to  adopt  any  radical  and  rational  regulation  of  the 
banking  system  through  laws  common  to  all  Germany." 

For  these  reasons  —  namely,  that  silver  was 
Reasons  for  it.       .    ,. 

bulky  and  inconvenient,  and  that  it  brought 

about  a  forced  circulation  of  paper  and  prevented  any  wise 
regulation  of  bank  issues  —  the  single  gold  standard  was 
recommended,  with  a  silver  subsidiary  coinage.  The 
measure  was  supported  by  very  strong  speeches  by  Minister 


58  MONEY. 

Delbriick  and  by  Dr.  Bamberger,  and  it  passed  on  the  23d 
of  November. 

This  measure  was  provisional  only.  The  ratio  of  15^ 
to  i  between  the  old  silver  and  the  new  gold  coins  was 
adopted.  In  1873  another  measure  was  brought  forward, 
for  withdrawing  the  old  silver  coins  from  cir- 
ThiersVremain.  culation  altogether.  It  was  carried  into  effect 
as  to  all  except  the  thalers.  These  continue 
still  in  circulation,  like  our  silver  dollars  and  the  French 
five-franc  pieces,  although  their  metallic  value  has  fallen 
one-half  since  1873. l  The  government  is  empowered  to 
withdraw  them  at  any  time,  but  has  not  seen  fit  to  do  so. 
There  has  been  a  good  deal  of  adverse  criticism  in  Ger- 
many on  account  of  this  delay,  but  it  is  based  upon  political 
rather  than  economic  grounds.  As  long  as  peace  continues 
the  thalers  will  circulate  freely  and  without  depreciation, 
but  in  the  event  of  war  they  might,  it  is  contended,  give 
rise  to  trouble  ;  that  is,  the  public,  knowing  that  they  are 
worth  intrinsically  only  one-half  of  what  they  purport  to  be, 
might  suddenly  demand  their  redemption.  In  such  a  case 
they  would  not  be  redeemed  because  the  government  and 
the  Reichsbank  would  have  other  and  more  imperative  calls 
for  their  gold.  How  much  trouble  would  result  from  this, 
is  matter  of  conjecture  only  —  not  much,  I  think.  France  is 
exposed  to  the  same  trouble.  All  that  can  be  said  is  that 

1  One  curious  consequence  of  the  Austro-German  treaty  of  1857  is 
mentioned  by  Professor  Lotz.  The  treaty  provided  that  Austrian 
thalers  coined  between  1857  and  1867  should  circulate  as  legal  tender 
money  in  Germany.  About  seventy  millions  of  the  four  hundred  and 
forty  million  marks  in  thaler  pieces  circulating  in  Germany  were  of  this 
Austrian  coinage,  and  it  became  a  matter  of  serious  controversy  which 
country  should  bear  the  loss  resulting  therefrom.  In  1892  the  question 
was  settled,  Austria  agreeing  to  take  back  one-third  of  her  thalers,  and 
Germany  to  take  care  of  the  rest.  The  loss  to  Germany  from  the 
Austrian  thalers  is  estimated  at  nineteen  to  twenty  million  marks. 


EXPERIENCE  OF  GERMANY  AND  FRANCE.  59 

the  monetary  affairs  of  both  countries  are  in  a  state  of 
inconsistency,  but  not  necessarily  in  a  state  of  danger. 

Both  are  on  the  "  limping  standard."  This 
But  are  not  phrase,  ktalon  boiteux,  was  brought  into  use  in 
Dangerous.  tne  Monetary  Conference  of  1881  to  define 

countries  which  have  the  single  gold  standard, 
but  also  have  a  considerable  amount  of  legal  tender  silver, 
which  the  banks  must  receive  on  deposit  and  with  which 
they  may,  if  they  choose,  redeem  their  notes.  This  kind  of 
money  is  aptly  called  by  Professor  Taussig  "  large  change." 
It  is  well  to  remark  here  that  at  the  Brussels  Monetary 
Conference  of  1892,  the  delegates  of  Germany  denied  that 
the  Reichsbank  had  ever  paid  silver  to  anybody  who  had 

claims  upon  it  and  who  desired  gold,  or  that 

The  Reichsbank    it  had   ever  made    difficulties    about    paying 

never  refuses  ...  . 

to  pay  Gold.          gold.     A  similar   denial   was   made   by   Dr. 

Bamberger,  who  is  an  authority  of  the  first 
rank,  and  he  added  that  if  the  bank  should  refuse  gold,  the 
government  would  immediately  put  it  in  liquidation.1 

There  is  another  consideration  which  Professor  Lotz  con- 
siders a  controlling  one  for  Germany.  "  The  military 
interest,"  he  says,  "  is  the  predominating  one  in  our  policy. 
What  then  are  the  demands  of  the  military  interest  ?  Each 
of  the  great  nations  which  are  preparing  for  the  next  war, 
France,  Germany,  Russia,  are  anxiously  collecting  a  great 
fund  of  gold  coin  in  the  vaults  of  their  central  banks.  In 
the  next  war  both  Germany  and  France  may 

Military  Reasons  be  forced  to  borrow  enormous  sums  of  gold 

for  the  Gold 

Standard.  com  from  their  central  banks  and  to  suspend 

the  specie  payment  of  bank  notes  during  the 
time  of  war ;  then  it  will  be  of  the  greatest  importance  to 
have  an  established  standard  of  value  which  is  everywhere 
accepted  without  artificial  international  measures.  The 

1  Stichworte  der  Silberleute,  Berlin,  1893. 


60  MONEY. 

next  war  will  cost  enormous  quantities  of  blood  and  enormous 
quantities  of  money.  But  the  war  money  will  certainly  be 
gold.  Since  gold  is  the  war  standard,  Germany,  and  France 
too,  will  prepare  their  standards  in  view  of  the  coming 
crisis,  as  they  are  preparing  guns,  powder  and  soldiers. 
This  is  not  a  political  argument  of  high  ethical  value,  but  it 
is  a  forcible  one  for  our  present  policy." 

Why  should  war-money  be  gold,  rather  than  silver  ? 
Because  everybody  who  has  anything  to  sell  is  willing  to 
take  'gold  in  exchange  for  it,  while  few  are  willing  to  take 
silver  except  in  small  sums.  Governments  accordingly 
choose  gold  for  the  same  reason  that  they  choose  breech- 
loading  rifles,  machine  guns  and  smokeless  powder,  instead 
of  the  old  contrivances  of  the  last  century.  They  are  con- 
cerned only  with  the  efficiency  of  the  instrument.  Is  it 
supposed  that  a  bimetallic  treaty  would  outlast  a  war  ? 
Would  the  parties  to  it  take  each  other's  silver  at  the  ratio 
of  1 6  to  i  or  at  any  ratio  different  in  the  smallest  degree 
from  the  market  ? 

It  is  said  by  some  that  Germany,  by  demonetizing  silver 
in  1871  and  by  selling  it  in  1873  and  later,  drove  France 
and  the  Latin  Union  into  a  suspension  of  silver  coinage,  and 
caused  the  great  decline  in  the  price  of  that  metal.  If  this 
were  true  it  might  possess  an  academic,  but  not  a  practical 
interest.  But  such  a  charge  cannot  be  sustained.  Ger- 
many had  completed  her  new  monetary 

The  Selling  of  system  and  stopped  selling:  silver  in  1870.  Her 
Silver  by  Ger-  /  * 

many,  total  sales  were  3,363,500  kilograms,    being 

much  less  than  the  present  yearly  production, 
whereas  silver  continued  to  decline  all  the  same.  The 
decline  has  been  more  rapid  since  Germany  stopped  selling 
than  it  was  before.  From  1871  to  1879  the  aggre£ate 
decline  was  9^/.  per  ounce  ;  from  1879  to  1894  it  has 
been  22\d. 


EXPERIENCE  OF  GERMANY  AND  FRANCE.  61 

Germany  was  driven  to  the  gold  standard,  just  as  Great 
Britain  and  the  United  States  had  been  previously,  by  the 
inconveniences  of  silver  money.  These  inconveniences  mani- 
fested themselves  with  some  variations  of  detail  in  different 
countries,  but  all  grew  out  of  the  ponderousness  of  silver, 
an  evil  which  increased  with  the  growth  of  commerce. 

In  France  the  livre  was  originally  a  pound  weight  of 
silver.  It  was  debased  by  royal  authority  from  time  to 
time,  as  in  England,  but  much  more  rapidly.  M.  Beranger, 
in  his  report  on  the  French  monetary  system  in  1802,  says 
that  the  ratio  of  gold  to  silver  was  changed  twenty-six  times 
between  1602  and  1773,  and  that  the  livre  at  the  time  when 
he  wrote  had  been  reduced  to  the  seventy-sixth  part  of  its 
original  weight.  The  livre  is  now  called  the 
S^evoiution  franc-  It:  is  impossible  to  trace  any  scientific 
connection  between  these  recoinages  and  the 
metal  ratios  except  that  the  divergences  between  the  legal 
and  market  ratios,  whenever  they  were  discovered,  were 
seized  upon  by  the  Government  as  an  excuse  for  further 
debasement.  They  "fell  back  alternately  from  gold  to 
silver  and  from  silver  to  gold,"  says  Beranger,  making  a 
profit  to  the  royal  treasury  each  time.  M.  Calonne,  Comp- 
troller-General under  Louis  XVI.,  has  given  us  a  list  of  the 
principal  recoinages  prior  to  his  time,  of  which  there  were 
four  in  the  reign  of  Louis  XIV.  and  five  in  that  of  Louis  XV. 

It  would  be  a  waste  of  time  to  recount  them.  The  ratio 
existing  when  Louis  XVI.  came  to  the  throne  was  14!  to  i. 
It  had  been  adopted  in  1726.  The  legal  ratio  in  England 
at  that  time,  as  we  have  seen,  was  15^.  Both  ratios  were, 
or  gradually  became,  divergent  from  the  market  ratio.  Sil- 
ver was  exported  from  England  and  gold  was  exported  from 
France.  A  recoinage  in  the  latter  country  became  neces- 
sary, and  this  was  undertaken  and  executed  by  Calonne  in 
good  faith  in  the  year  1785.  Calonne  chose  the  ratio  of 


62  MONE  Y. 

15^2.     This  ratio  was  in  force  when  the  celebrated  law  of 

1803  was  passed,  under  the  Consulate.     It  was  not  exactly 

conformable  to  the  market  ratio  at  the  time. 

adapted  bum      It:  rated  §old  to°  hi&nlY>  but  Calonne  said  that 
he  had  observed  that  gold  had  an  advancing 

tendency,  and  he  believed  that  if  15^  was  not  the  true  ratio 
then,  it  would  become  so  before  long.  In  this  he  was  right, 
for  when  the  law  of  1803  was  passed,  there  was  no  observ- 
able tendency  to  export  either  metal,  and  the  Hamburg 
market  ratio,  as  tabulated  by  Soetbeer,  was  very  close 
to  15^. 

I  have  in  another  place  made  a  study  of  the  documents 
and  debates  which  preceded  and  led  up  to  the  French 

Monetary  Law  of  1803.  The  substance  is 
The  Law  of  1803.  .  . 

that  these  learned  and  patriotic  men,  without 

exception,  considered  a  double  standard  impossible  and  any 
attempt  to  establish  it  disastrous.  They  accordingly  de- 
termined to  establish,  and  thought  that  they  had  established, 
the  single  silver  standard  by  a  law,  the  first  paragraph  of 
which  reads  as  follows  : 

General  provision. — Five  grams  of  silver,  nine-tenths  fine,  con- 
stitute the  monetary  unit  which  retains  the  name  of  franc. 

But  they  were  confronted  by  the  fact  that  gold  was  an 
indispensable  part  of  the  monetary  system.  How  to  retain 
it  in  the  circulation  as  a  subordinate  metal  while  making 
silver  the  sole  standard  was  the  great  puzzle  of  the  day. 

No  less  than  eight  important  papers  were 
the  Day*221*  °f  drawn  UP  from  time  to  time  on  this  question, 

and  no  decision  was  ever  reached  except  to 
allow  gold  to  be  coined  at  the  French  mint  at  the  ratio  of 
15%  to  i,  with  the  understanding  that  if  the  market  ratio 
should  change,  the  gold,  but  not  the  silver,  should  be 
recoined. 


EXPERIENCE  OF  GERMANY  AND  FRANCE.  63 

Almost  immediately  after  its  enactment  France  plunged 

into  wars  which  lasted  till  1815.     Of  course,  the  nation  had 

very  little  time  to  think  about  her  coinage  laws.     Gradually 

the  price  of  gold  rose  above  the  legal  ratio,  and  that  metal 

was  exported  to  such  an  extent  that  Chevalier 

SSt^rTsis    tells  us  that "  twenty-five  years  after  that  date 

[1803]  the  circulation  consisted  of  silver 
only."  Abundant  proofs  can  be  adduced  showing  that 
bimetallism  did  not  exist  in  practice  in  France  between 
1820  and  1847.  Mr.  Robert  Giffen  has  published  a  table 
showing  the  premium  on  gold  in  Paris  during  every  month 
of  that  period.  This  premium  was  at  times  as  high  as  two 
per  cent.  The  contention  of  the  bimetallists  that  the  French 
law  of  1803  kept  the  ratio  steady  at  15^  till  1873  is  con- 
tradicted by  facts.1 

1  The  following  citations  are  conclusive  on  this  point : 

"A  change  of  i^  per  cent  in  favor  of  gold  had  sufficed,  thirty  or 
forty  years  ago,  to  cause  'that  metal  to  disappear  wholly  from  com- 
mercial payments.'1'1 — Chevalier,  Baisse  probable  de  I1  or,  p.  215,  written 
in  1859. 

"  Under  the  regime  of  the  Law  of  the  7th  Germinal,  year  XI  (1803), 
gold  has  ceased  to  figure  in  transactions  of  any  magnitude,  since  it 
acquired  an  appreciable  premium.  People  took  their  gold  to  the  mo'ney- 
changer,  in  order  to  pocket  the  premium  and  made  payments  exclu- 
sively in  silver  as  everybody  knows." — Ibid.,  p.  220.- 

"  In  those  times  when  one  was  paid  even  so  small  a  sum  as  1000 
francs,  he  received  his  bulky  and  heavy  money  in  a  canvas  bag  and  had 
to  hire  a  porter  or  a  cab  to  carry  it  home." — Prof.  Francis  Bowen  in 
report  of  U.  S.  Monetary  Commission  of  1876,  p.  146. 

"  In  France  all  large  payments,  which,  as  is  well  known,  were 
formerly  made  in  sacks  of  Jive-franc  pieces,  have  been  of  late  years 
effected  in  gold,  and  almost  all  the  old  five-franc  pieces  have  been  suc- 
cessively exported  or  melted  down." — Report  of  M.  Achille  Fould, 
Minister  of  Finance  to  the  Emperor  Napoleon  III.,  on  the  monetary 
treaty  of  1865. 

"  Before  1848  silver  was  the  usual  money  ;  daily  payments  were 
made  in  five-franc  pieces.  Gold,  proportionally  rare,  had  at  this  epoch 


64  MONEY. 

From  1850  to  1860  there  was  an  enormous  increase  in 
the  production  of  gold  in  Russia,  California  and  Australia, 
and  scarcely  any  increase  in  that  of  silver.  The  market 
ratio  declined  to  15.46  in  the  year  1851,  so,  of  course,  gold 
could  again  circulate  in  France.  The  ratio  continued  to 
decline  till  1859,  when  it  reached  its  lowest  point,  viz.,  15.19. 
It  remained  below  15%  till  1867.  During  this  interval  of 
sixteen  years  France  imported  $600,000,000 

SUve^ter  1850  of  §old  and  exP°rted  about  half  that  amount 
of  silver.  Her  circulation  became  saturated 
with  the  yellow  metal,  to  the  great  delight  of  her  people,  who 
had  become  tired  of  carrying  sacks  of  five-franc  pieces  to 
and  fro  in  cabs  and  handcarts. 

The  exportation  of  silver  from  France  was  so  extensive 
at  this  time  that  the  country  was  almost  denuded  of  small 
money.  It  became  necessary  to  coin  gold  pieces  as  small 
as  five  francs.  In  1857  the  scarcity  of  silver  became  so 
great  that  the  Government  appointed  a  commission  to  in- 
vestigate the  subject.  This  commission  was  bent  upon 
maintaining  the  silver  standard.  So,  instead  of  following 
the  example  of  the  United  States  and  making 
silver  coins  of  light  weight  and  of  limited 
legal  tender,  it  recommended  that  an  export 
duty  be  put  on  silver,  that  bullion  brokers  be  prosecuted, 
and  that  assorting  and  trading  in  coins  be  prohibited  by 
law.  In  other  words,  this  sapient  commission  went  back 
for  inspiration  to  the  times  of  Louis  XIV.  and  of  James  I. 

almost  gone  out  of  the  French  monetary  circulation,  in  which  it  was 
estimated  that  not  more  than  one  hundred  million  francs  remained." 
— Block's  Dictionnaire  de  la  Politique,  vol.  ii,  p.  338. 

"This  is  evident  from  the  well  known  fact  that  the  currency  of 
France,  which  is  of  silver,  is  not  more  liable  to  fluctuate  than  that 
of  Great  Britain  which  is  of  gold." — Raguet,  Banking  and  Currency, 
p.  194,  written  in  1839 


EXPERIENCE  OF  GERMANY  AND  FRANCE.          65 

and  Charles  I.  of  England.  Some  attempts  were  actually 
made  to  carry  out  these  senseless  recommendations,  but  they 
were  soon  abandoned.  It  was  about  this  time  that  Chevalier, 
the  French  economist,  who  was  a  stout  champion  of  the 
silver  standard,  proposed  to  solve  the  difficulty  by  providing 

that  French  gold  coins  should  have  a  fixed 
Absurd  Remedies.        .   .       .  ...  .  .      . 

weight,  but  a  variable   value,   and   that   the 

value  should  be  announced  by  legislative  decree  at  certain 
short  intervals.     M.   Levasseur,   another  economist  of  re- 
nown, but  with  a  keener  vision,  expressed  the  opinion  that 
gold  had  made  itself  the  standard  in  spite  of  the  law,  and  \  . 
he  suggested  that  the  wisest  thing  for  France  to  do  was  to    | 
make  the  law  conform  to  the  fact. 

Nothing  was  done  at  that  time.  Events  drifted  till  1864, 
when  the  lack  of  small  change  had  become  so  serious  that 
the  Government  brought  a  bill  before  the  Corps  Legislatif 
authorizing  the  lowering  of  the  fineness  of  all  the  silver 
coins  less  than  five  francs  to  835  instead  of  900  thousandths. 
This  was  in  effect  the  same  thing  that  we  had  done  in  1853, 
when  we  converted  all  our  silver  coins  less  than  one  dollar 
into  token  money.  The  proposal  was  more  shocking  to  the 
French  legislator  than  to  the  American,  for  the  reason  that 
the  franc  was  the  monetary  unit  sanctioned  by  the  law  of 
1803,  and  this  monetary  unit  was  one  of  the  very  things  to 
be  lowered.  The  Legislature  recoiled,  but  it  sustained  the 
lowering  of  the  pieces  smaller  than  one  franc.  The  difficulty 
could  not  be  removed  by  such  homoeopathic  treatment,  and 
as  the  same  difficulty  existed  in  the  neighbor- 

The  Latin  Mone-   inpr  countries  of  Belgium  and  Switzerland,  a 

tary  Union  .  n     -,     r 

formed.  convention   was    called    for   the    purpose    of 

adopting  some  common  steps  for  relief.  Italy 
also  was  induced  to  join,  and  soon  afterwards  Greece. 
France  considered  it  admissible  to  do  by  treaty  what  she 
had  not  been  willing  to  do  by  direct  act.  By  treaty  dated 


66  MONEY. 

December  23,  1865,  these  four  countries  adopted  their 
present  token  coinage  of  silver  and  limited  its  legal-tender 
faculty  to  fifty  francs.  *This  was  the  origin  of  the  so-called 
Latin  Monetary  Union. 

The  French  legislators  abandoned  the  silver  standard 
with  extreme  reluctance.  They  were  attached  to  it  by 
custom  and  tradition.  They  desired,  like  their  ancestors  of 
the  Revolution,  to  have  the  silver  standard  with  gold  as  a 
subordinate  metal.  They  allowed  events  to  drift  until  1873, 
when  they  were  startled  to  find  that  154,000,000  francs' 
worth  of  silver  had  been  deposited  at  the 

How  France          muit  for  coinage  in  that  year,   against  only 

came  to  the  Gold  b  ,  . 

Standard.  5,000,000    francs     worth    in    1871-72.     The 

amount  of  silver  so  deposited  was  more  than 
the  mint  could  coin  in  a  year  and  a  half,  if  it  did  nothing 
else.  The  market  ratio  of  gold  had  risen  nearly  to  15.75. 
There  was  a  profit  of  i^  per  cent  in  sending  silver  bullion 
to  the  mint  and  using  the  resulting  coin  to  buy  gold  for 
export.  The  delegates  of  the  Latin  Monetary  Union  were 
hastily  assembled,  and  they  determined  to  limit  the  coinage 
of  silver  to  120,000,000  francs  per  year  for  all  the  countries 
concerned.  This  was  virtually  the  adoption  of  the  gold 
standard. 

At  the"  beginning  of  1876  the  market  ratio  had  reached 
nearly  seventeen  to  one.  The  crisis  was  becoming  acute. 
Switzerland  had  ceased  to  coin  her  allotted  share  of  silver. 
Belgium  had  passed  a  law  authorizing  the  Government  to 
stop  coining  that  metal.  M.  Leon  Say,  the 
French  Minister  of  Finance,  sent  to  the 
Senate  March  21,  1876,  a  bill  of  only  two 
lines,  in  these  words,  viz.,  "  The  coinage  of  silver  five- 
franc  pieces  may  be  limited  or  suspended  by  decree."  The 
Senate  Committee  to  which  it  was  referred,  under  the  lead 
of  M.  de  Parieu,  reported  a  more  drastic  measure  absolutely 


HOLLAND,  AUSTRIA  AND  INDIA.  67 

forbidding  the  coinage  of  any  silver  money  of  full  legal 
tender.  The  legislative  body  again  showed  its  aversion  to 
change  by  rejecting  the  Senate  report  and  adopting,  on  the 
5th  of  August,  the  more  moderate  measure  of  the  Minister 
of  Finance.  But  it  really  made  no  difference  which  of  the 
two  was  adopted.  The  door  of  the  French  mint  was  closed 
to  silver  on  the  following  day,  and  has  not  been  reopened. 

The  gold  standard  made  its  way  in  France  not  only 
without  design  on  the  part  of  individuals,  but  in  spite  of  the 
strenuous  resistance  of  almost  all  the  men  who  busied 
themselves  with  the  subject  at  all. 


CHAPTER    III. 
HOLLAND,  AUSTRIA  AND  INDIA. 

THE  experience  of  Holland  is  no  less  instructive.  Prior 
to  1847  this  country  had  the  double  standard  at  the  ratio  of 
15.60  to  i.  She  had  become  convinced, 
however>  that  a  double  standard  was  merely 
an  alternate  standard,  first  one  thing  and  then 
the  other.  So  she  decided  to  have  a  single  standard,  and 
adopted  that  of  silver  in  1847. 

When  Germany  adopted  the  gold  standard  a  commission 
was  appointed  by  the  King  of  the  Netherlands  to  examine 
the  monetary  question.  It  recommended  that  the  coinage 
of  silver  be  suspended  for  six  months,  and  a  bill  to  that 
effect  was  passed  in  May,  1873.  This  law  was  renewed 
twice  for  periods  of  six  months  each.  A  second  report  of 
the  Commission  was  made,  recommending  a  bill  for  the 
adoption  of  the  single  gold  standard,  but  this  bill  was 
rejected  by  the  second  Chamber  in  March,  1874.  When 
the  law  suspending  the  coinage  of  silver  expired  in  May, 


68  MONEY. 

1874,  immense  quantities  of  silver  began  to  flow  to  the 
mint.  Silver  florins  passed  in  trade  at  the  old  ratio  of 

TriedtoAvoid  I5'6°  because  they  were  limited  in  quantity, 
the  Gold  stand-  but  it  was  obvious  that  they  would  soon  fall 

ard,  but  could  to  the  bullion  value  of  silver.  So  in  December 
not. 

1874,  a  new  six-months'  suspension  of  coinage 

was  ordered  by  the  legislative  body  —  the  same  one  that 
had  refused  to  adopt  the  single  gold  standard.  Before  this 
period  had  elapsed  the  Minister  of  Finance  proposed  that 
the  silver  coinage  be  discontinued  indefinitely  and  that  gold 
coinage  be  allowed.  This  bill  was  passed  in  June,  1875. 
Here  again  the  gold  standard  made  its  way  over  the  heads 
of  the  wise  men  of  the  time. 

The  adoption  of  the  gold  standard  by  Austria  is  now  in 
progress.  That  country  had  had  the  single  silver  standard 
since  1857,  but  was  under  a  suspension  of  specie  payments. 
When  it  was  ascertained  in  1879  that  the  decline  in  silver 
was  likely  to  be  permanent  the  Government  gave  orders  to 
the  mints  in  both  Austria  and  Hungary  to 

Austria-Hun-      receive  no  more  of  that  metal  from  private  in- 

g:ary  stops  Silver         .  J 

Coinage  in  1879.    dividuals   for   coinage.     The    effect   of    this 

order  was  to  make  Government  paper  money 
the  standard,  and  this  paper  varied  somewhat  from  day  to 
day  in  comparison  with  gold,  but  it  no  longer  followed  the 
downward  march  of  silver.  The  paper  florin  was  worth  in 
1879  about  42  cents.  In  1892,  before  the  currency  reform 
was  adopted,  it  was  worth  41  cents.  If  it  had  kept  pace 
*with  the  decline  of  silver  it  would  have  been 

Thus  prevents      worth  only  30  cents.     This  fact  was  adverted 

Serious  Decline 

in  the  Currency.   to    Dy  the   Indian   Monetary  Commission    in 

1893,  as  showing  that  comparative  steadiness 
in  the  value  of  a  silver  currency  may  be  maintained,  if  the 
quantity  of  it  is  restricted.  Austria  had  a  gold  coinage  at 
this  time,  but  it  was  not  legal  tender. 


HOLLAND,  AUSTRIA  AND  INDIA.  69 

Since  1879  the  problem  of  finance  in  Austria  has  been 
twofold,  namely,  to  resume  specie  payments  (which  must, 
under  the  circumstances,  be  gold  payments),  and  to  fix  a 
ratio  at  which  all  paper  money  and  paper  obligations  should 
be  redeemable.  The  ratio  decided  upon  was  that  of  119 
paper  to  100  gold,  that  being  the  average  ratio  prevailing  in 
the  market  during  the  thirteen  years  from  1879  to  1892. 

As  the  question  of  standard  was  really  settled  by  Austria 
in  1879,  wnen  sne  closed  her  mints  to  silver,  we  are  con- 
cerned to  know  how  she  came  to  take  that  step.  The 
report  of  the  special  commission  of  the  upper  house  on  this 
subject  says  that  it  had  become  clear  as  long  ago  as  the 
decade  1860-1870,  when  Europe  was  becom- 

inS  saturated  with  S°ld>  that  this  was  the  onlY 
metal  fitted  to  be  the  standard  of  nations  of 
advanced  civilization.  "  Gold  was  dominant  and  the  stand- 
ard of  value,"  says  this  report,  "in  all  trade  on  a  great 
scale  as  early  as  the  fourteenth  and  fifteenth  centuries,  even 
though  silver  was  then  the  standard  in  all  domestic  ex- 
changes. .  .  .  In  every  age  there  is  some  metal  dominant  in 
the  industry  of  the  world,  which  forces  its  way  with  elemental 
strength  in  the  face  of  any  public  regulation,  and  in  our  day 
gold  is  that  metal.'1'' 

After  many  struggles  with  the  double  standard  the  single 
standard  of  silver  was  established  in  British  India  in  the 

year  1835,  the  unit  of  value  being  the  rupee. 
British  India.         _  .  ... 

Prior   to    1873    this   com   was   worth    about 

is.  io^V.,  but  was  usually  reckoned  as  the  equivalent  of 
two  shillings,  or  48  cents,  the  price  of  silver  being  about 
6o^/.  per  ounce.  With  the  gradual  growth  of  commerce  the 
inconvenience  of  silver,  on  account  of  its  bulk  and  weight, 
became  oppressive.  Hence,  as  early  as  1859  the  com- 
mercial classes  of  the  country  began  to  urge  the  govern- 
ment to  adopt  the  gold  standard,  with  silver  as  subsidiary 


70  MONEY. 

currency.     In   1864  the   Bombay  Association   addressed  a 

memorial  to  the  government  on  the  subject,   saying  "that 

a  silver  currency  might  have  been  suitable  to 

The  Silver  the  country  when  its  commerce  was  limited 

Standard  adopted 

in  1835.  and  payments   in  the  mam  extremely  small, 

but  was  very  inconvenient  when  wealth  was  largely  diffused 
throughout  the  country  and  the  operations  of  commerce  had 
become  so  enormous.  The  transport  of  this  bulky  and 

cumbersome  currency  entailed  heavy  and 
Early  Movement  useless  expense  on  the  country  and  was  a 
standard.  serious  impediment  to  trade."  The  Bombay 

Chamber  of  Commerce  *took  similar  action, 
saying  that  "the  importation  of  gold  into  India  had 
steadily  increased  for  many  years,  though  it  was  not  legal 

tender;  that  the  natives  themselves  had  de- 

In  Consequence     vised  a  rude  remedy  for  the  deficiency  of  the 

of  the  Bulk  and 

Weight  of  Silver,  existing    silver    currency  by  using  gold  bars 

stamped  by  the  Bombay  banks  as  a  circulating 
medium.  That  the  exclusion  of  gold  from  the  currency  of 
India  could  not  be  justified  or  be  considered  other  than 
barbarous,  irrational  and  unnatural."  l 

These  petitions  led  the  government  of  India  to  ask  leave 
of  the  home  government  to  adopt  bimetallism,  although  the 
petitioners  had  asked  for  the  single  gold 
standard>  with  silver  subsidiary.  The  home 
government  replied  that  bimetallism  was  im- 
practicable by  reason  of  the  market  variations  of  the  two 
metals.  So  the  matter  was  dropped  and  was  not  resumed 
until  the  government  itself  began  to  be  threatened  with  a 
serious  loss  on  its  remittances  to  England.  In  the  year 
1878,  silver  having  fallen  to  50^.  per  ounce,  the  government 
of  India  made  a  proposal  to  the  home  government  that  it 
be  authorized  to  close  the  mints  against  the  free  coinage 

1  Bimetallism,  by  Henry  Dunning  Macleod,  pp.  74,  77. 


HOLLAND,  AUSTRIA  AND  INDIA.  71 

of  that  metal  until  the  rupee  should  rise  to  its  normal  value. 
The  proposal  was  rejected.  In  the  light  of  subsequent 
events  this  was  a  serious  mistake.  In  the  year  1886,  silver 
having  fallen  to  \2.d.  per  ounce,  the  government  of  India 
again  expressed  its  anxieties  to  the  home  government,  out- 
did not  obtain  liberty  to  take  any  decisive  action. 

The  government  of  India  collects  its  taxes  in  rupees  and 
has  to  pay  a  large  sum  annually  in  gold  or  its  equivalent,  for 
interest  on  the  public  debt,  for  pensions,  and  for  military 
supplies  purchased  in  Europe.  These  sterling  obligations 
are  nearly  ^"20,000,000  per  year,  chiefly  in  consequence  of 
large  borrowings  in  England  for  railways  and 
tancest* England  irrigation  works.  The  total  revenues,  includ- 
ing railway  and  irrigation  receipts,  for  1891 
were  875,000,000  rupees,  of  which  about  one-third  was 
required  to  meet  the  sterling  payments.  These  payments 
are  made  in  the  following  manner  :  The  taxes  being  col- 
lected in  rupees  and  lodged  in  the  Indian  Treasury,  the 
India  Council  makes  drafts  on  that  fund  from  time  to  time 
and  sells  them  in  London  to  the  highest  bidder  for  sterling, 
with  which  it  pays  its  gold  obligations.  These 
"  Conncii'Biiis "  Drafts  ca^  ^or  rupe^s,  and  are  known  as 
"  Council  Bills."  They  are  bought  by  English 
importers  of  Indian  goods.  Thus  the  payment  of  India's 
foreign  debt  is  made  with  her  exported  produce.  Balances 
of  trade  between  England  and  India  are  settled  with  gold, 
as  with  other  countries.  India  has  a  large  stock  of  gold  in 
use  as  commercial  money. 

On  the  23d  of  March,    1892,  the  price  of  silver  having 

fallen  to  39^.  per  ounce,  the  government  of 

i892Cm  India  communicated  to  the  home  government 

a  correspondence  with  the  Bengal  Chamber 

of  Commerce  in  which  the  latter  body  asked  attention  to 

the  heavy  fall  in  the  value  of  the  rupee  and  inquired  what 


72  MONEY. 

the  government  proposed  to  do  about  it.  The  government 
of  India  renewed  the  expression  of  its  anxiety  on  this 
subject. 

On  the  2ist  of  June,  the  government  of  India  transmitted 
to  the  home  government  a  report  and  plan  for  currency 
reform  prepared  by  Sir  David  Barbour,  Financial  Secretary 
of  India  (a  very  pronounced  bimetallist),  to  be  considered 
in  case  the  Brussels  Conference  should  adjourn  without  a 
definite  and  satisfactory  result.  In  this  report  it  was  con- 
sidered impossible  to  establish  in  India  a  currency  composed 
entirely  of  gold,  yet  the  example  of  France  and  of  other 
countries,  which  had  the  gold  standard  but  maintained  a 
large  circulation  of  silver  of  full  legal  tender, 
P°inted  to  the  conclusion  that  the  gold 
standard  could  be  established  in  India  without 
a  large  accumulation  of  gold.  It  was  believed  that 
^"15,000,000  sterling  would  be  ample  for  the  purpose.  Sir 
David  avowed  himself  a  bimetallist  in  principle,  but  in  the 
event  of  a  failure  of  the  Brussels  Conference  he  thought  that 
an  attempt  should  be  made  to  establish  the  gold  standard  in 
India.  A  later  statement  from  the  same  authority  dwelt,  in 
the  strongest  manner,  on  the  severe  and  increasing  embar- 
rassments to  the  finances  of  India  growing  out  of  the  decline 
of  silver.  There  was  a  deficit,  he  said,  for  the  year  1893-94 
of  15,951,000  rupees.  It  would  be  practica- 

fot^eG^era-868  ble  tO  deal  with  this  deficit  if  they  COuld  be 
ment  by  Reason  assured  that  the  decline  of  silver  would  stop 

Standard^  at  that  Point-  "  But  it:  unfortunately  happens 
that  unless  some  settlement  of  the  currency 
question  is  obtained,  there  is  no  prospect  of  even  the  most 
moderate  degree  of  stability  in  the  rate  of  exchange.  The 
disastrous  and  unprecedented  fall  in  the  gold  value  of  silver, 
which  has  been  experienced  during  the  last  few  years,  has 
destroyed  confidence,  and  we  know  that  the  question  of 


HOLLAND,  AUSTRIA  AND  INDIA.  73 

stopping  their  purchases  of  silver  is  being  seriously  agitated 
in  the  United  States  of  America.  The  exaot  consequences 
of  such  stoppage  it  is  impossible  to  foretell  ;  but  the  con- 
clusion I  have  come  to  is  that  the  consequences  would,  at 
any  rate  for  a  time,  be  disastrous  to  the  Indian  Exchequer 
and  that  the  government  of  India  would,  in  such  case,  be 
involved  in  pecuniary  difficulties  of  greater  magnitude  and 
more  lasting  in  their  effects  than  any  which  have  hitherto 
been  experienced  in  this  country." 

On  the  2ist  of  October,  the  Secretary  of  State  for  India 
notified  the  Lord  Chancellor  (Lord  Herschell)  that  a  com- 
mittee had  been  appointed  to  consider  and 

India  Currency     report  upon  the  communications  of  the  gov- 

ReformCom-  '       T     ,.  ,  .  . 

mittee.  ernment  of  India  on  the  subject  of  currency 

reform,  consisting  of  the  Lord  Chancellor,  the 
Rt.  Hon.  L.  H.  Courtney,  Sir  T.  H.  Farrer,  Sir  R.  E. 
Welby,  Mr.  Arthur  Godley,  Lt.  Gen.  R.  Strachey  and  Mr. 
B.  W.  Currie. 

The  report  of  the  Committee  was  made  on  the  3ist  of  May, 
1893.  Allusion  was  first  made  to  the  embarrassments  of  the 
government  of  India  in  its  remittances  to  England.  The  effect 
of  the  fall  of  silver  on  the  people  and  the  commerce  of  India 

was  next  considered.  As  India  pays  her 
Economic  and  ,  .  .  ,  .,  .  .  . 

Social  Effects  of    debts,  not  with  silver,  but  with  her  products, 

the  Fall  of  it  cannot  be  affirmed  that,  taking  the  country 

Silver. 

as  a  whole,  she  has  lost  by  the  fall  of  silver, 

but  there  can  be  no  doubt  that  the  burden  has  been  shifted 
from  one  class  to  another.  The  land  tax  under  the  per- 
manent settlement  of  Bengal  has  been  lightened,  while  the 
increased  salt  tax  has  weighed  more  heavily  upon  the  people 
at  large.  It  has  been  said  that  the  fall  of  silver  has  had  a 
tendency  to  stimulate  exports  ;  that  a  given  quantity  of 
produce  exported  on  a  declining  silver  market  brings  to  the 
exporter  a.  constantly  increasing  number  of  rupees,  while 


74  MONEY. 

wages  and  other  costs  of  production  do  not  increase  in  the 
same  ratio,  and  hence  that  exports  are  stimulated.     This  is 

a  plausible  theory,  but  statistics  do  not  sustain 
Not  True  that 
Indian  Exports     lt:-     On  tne  contrary  they  show  that  the  export 

were  stimulated    trade  of   India  has  been  less  when  silver  was 
oy  Fall  of  Silver. 

rapidly  falling  than  when  it  was  comparatively 

steady.  Several  striking  illustrations  of  this  fact  are  given. 
If  it  were  true  that  exports  were  stimulated  in  the  manner 
suggested  it  would  not  prove  that  it  was  an  advantage  to 
India  as  a  whole,  but  merely  that  the  employer  had  made  a 
temporary  gain  at  the  expense  of  the  wage  earner,  since 
wages  rise  more  slowly  than  prices.  It  has  been  generally 
believed  that  prices  in  the  interior  of  India  have  remained 
unchanged  notwithstanding  the  fall  of  silver, 

Or  that  Prices       Dut  the  evidence  points  to  the  conclusion  that 

had  remained          .     . 

Stationary.          during  recent  years  the  silver  price  of  Indian 

produce  has  risen.  Testimony  showed  that 
rice,  the  chief  food  product  of  Bengal,  had  more  than 
doubled  in  price  since  the  rupee  began  to  fall.  The 
comparison  was  made  between  seasons  of  ordinary  fer- 
tility.1 This  had  been  a  great  hardship  to  the  laboring 
classes. 

Attention  was  then  given  to  Sir  D.  Barbour's  plan  of  cur- 
rency reform.     It  was  regarded  as  an  encouraging  fact  that 

the  closing  of  the  Austrian  mints  to  silver  in 

A  Hint  from  the    the  year   1879,  although  that  country  had  an 

Experience  of        .  ' 

Austria.  inconvertible    paper    currency,    had    had   the 

effect  to  make  the  foreign  exchanges  com- 
paratively steady,  notwithstanding  the  great  decline  of  silver. 
Both  Austria  and  India  had  the  single  silver  standard,  but 
the  florin  had  suffered  little  depreciation  during  the  past 
thirteen  years,  while  the  rupee  had  suffered  a  heavy 
decline. 

1  Testimony  of  J.  A.  Anderson,  Minutes  of  Evidence,  p.  192. 


HOLLAND,  AUSTRIA  AND  INDIA.  75 

The   Committee   recommended   that  the   request  of   the 

government  of  India  for  permission  to  close  the  mints  against 

silver,  retaining  the  right  to  coin  rupees  on 

Indian  Mints        government  account,  be  granted.     In  order, 

closed  in  June,  .    * 

I893t  however,   to   guard   against   any  sudden  and 

large  advance  in  the  value  of  the  rupee  on 
account  of  its  scarcity,  it  was  recommended  that  the  govern- 
ment should  announce  that  it  would  give  rupees  for  gold  at 
the  rate  of  is.  $d.  per  rupee  and  would  receive  gold  for 
taxes  at  that  rate. 

The  recommendations  of  the  Committee  were  approved 
by  the  home  government  and  were  promulgated  by  the 
government  of  India  on  the  26th  of  June,  1893. 

The  first  effect  of  the  closing  of  the  Indian  mints  was  a 

heavy  fall  in  the  price  of  silver.     The  price  at  the  beginning 

of  June,   1893,  was  38^^.     After  the  announcement  was 

made  it  fell  to  30^4  </.,   and  later  to   27^2^.     The  public 

assumed  that  it  was  the  intention  of  the  Indian 

Effects  of  the        government   not  to  let   the  rupee  fall  below 

Government's 

Action.  IS-  4">t  although  the  language  used  was  merely 

a  promise  that  it  should  not  rise  above  that 
figure.  The  government  gave  some  grounds  for  the  mistake 
by  refusing  at  first  to  sell  Council  Bills  below  is.  ^d.  But 
it  could  not  maintain  that  rate.  A  large  amount  of  silver 
had  been  lodged  at  the  mints  before  the  decree  became 
operative  and  the  owners  of  this  could  sell  rupees  in  com- 
petition with  the  government,  as  indeed  any- 
bocty  cou^  wno  possessed  rupees  or  corn- 
Currency  but  mercial  credits  in  India.  Meanwhile  the  ster- 
suver  ^n&  obligations  must  be  met.  Borrowing  was 

resorted  to  at  first,  but  eventually  Council 
Bills  had  to  be  sold  for  what  they  would  fetch.  The  price 
of  rupees  fell  slowly  from  i$%d.  to  i3</.  The  price  of 
silver  fell  to  2^l/>d.  per  ounce.  The  value  of  the  rupee 


76  MONEY. 

under  free  coinage  would  be  only  n</.  In  other  words  the 
rupee  has  a  "  scarcity  value "  of  zd.  more  than  the  silver 
bullion,  contained  in  it.  This  2d.  stands  for  more  than 
;£2, 000,000  annually  in  the  government's  gold  obligations. 
The  rupee  is  now  in  the  category  of  irredeemable  currency, 
like  the  Austrian  silver  florin,  and  the  problem  before  the 
government  is  the  same  that  Austria  had  to  deal  with  before 
she  took  steps  to  introduce  the  gold  standard. 


CHAPTER  IV. 
THE  BRUSSELS  MONETARY  CONFERENCE. 

THREE  international  conferences  have  been  held  for  the 
purpose  of  considering  the  question  of  the  remonetization  of 
silver.1 

The  first  was  called  at  the  instance  of  the  United  States, 
and  met  at  Paris,  August  16,  1878.  .  All  the  great  powers  of 
Europe  except  Germany,  and  most  of  the 
^8?8er  lesser  ones,  took  part  in  it.  The  conference 

remained  in  session  till  August  29.  On  the 
day  before  the  adjournment  the  European  delegates,  except 
those  of  Italy,  joined  in  a  collective  answer  to  the  propo- 
sitions of  the  United  States  saying  :  (i)  that  it  is  necessary 
to  maintain  in  the  world  the  monetary  function  of  silver  as 
well  as  of  gold,  but  that  the  selection  of  one  or  the  other,  or 
both  simultaneously,  should  be  governed  by  the  special 
situation  of  each  state  or  group  of  states  ;  (2)  that  the 
question  of  the  restriction  of  the  coinage  of  silver  should  be 
equally  left  to  the  discretion  of  each  state  or  group  of  states  ; 

1  The  earlier  Conference  of  1867  had  for  its  object  the  adoption  of 
an  international  coin,  not  the  establishment  of  any  particular  metallic 
standard;  but  incidentally  a  preference  was  expressed  for  the  single 
gold  standard.  This  Conference  had  no  practical  result. 


THE  BRUSSELS  MONETARY  CONFERENCE.  77 

(3)  that  the  differences  of  opinion  which  have  appeared 
exclude  the  discussion  of  the  adoption  of  a  common  ratio 
between  the  two  metals.  The  representatives  of  the  United 
States  dissented  from  these  conclusions.  Thereupon  the 
conference  adjourned  sine  die. 

The  second  conference  was  held  at  the  instance  of  France 
and  the  United  States.  It  met  in  Paris,  April  19,  1881.  In 
this  conference  Germany  and  British  India 
participated,  in  addition  to  the  countries  repre- 
sented in  that  of  1878.  It  remained  in  session 
till  July  8,  having  taken  one  intermission  from  May  19  to 
June  30.  No  conclusion  was  reached  and  no  vote  was  taken 
on  the  main  question.  The  conference  adjourned  to  April 
12,  1882,  but  never  reassembled. 

The  third  conference  assembled  at  the  City  of  Brussels, 
November  22,  1892,  at  the  invitation  of  the  President  of  the 
United  States  "for  the  purpose  of  considering  what  meas- 
ures, if  any,  can  be  taken  to  increase  the  use  of  silver  in  the 
currency  systems  of  nations."  The  invitation  was  accepted 
by  Austria-Hungary,  Belgium,  Denmark,  France,  Germany, 
Great  Britain,  British  India,  Greece,  Italy,  Mexico,  the 
Netherlands,  Norway,  Portugal,  Roumania,  Russia,  Spain, 
Sweden,  Switzerland,  and  Turkey.  The  United  States  were 
represented  by  Edwin  H.  Terrell  (Minister  to 
compo^tionof  Belgium),  William  B.  Allison  and  John  P. 
Conference.  Jones  (Senators),  James  B.  McCreary  (a  Rep- 
resentative in  Congress),  Mr.  Henry  W.  Can- 
non and  Mr.  E.  Benjamin  Andrews.  The  delegates  of 
Great  Britain  were  Sir  Charles  Fremantle,  Sir  C.  Rivers 
Wilson,  Sir  Win.  Houldsworth,  Mr.  Alfred  D.  Rothschild 
and  Mr.  Bertram  Currie.  Those  of  France  were  Mr.  Tirard, 
Minister  of  Finance,  Mr.  de  Lion  d'Airoles,  Director  of  the 
Mint,  and  Mr.  de  Foville,  Chief  Statistician  of  the  Ministry 
of  Finance.  Those  of  Germany  were  Count  Alvensleben 


78  MONEY. 

(Minister  to  Belgium),  Dr.  von  Glasenapp  (Privy  Coun- 
cillor), and  Mr.  Hartung,  Director  of  the  Reichsbank.  Mr. 
Montefiore  Levi,  one  of  the  delegates  of  Belgium,  was 
chosen  President. 

The  second  session  was  held  November  25.     Mr.  Allard 
of  Belgium  having  laid  on  the  table  a  pamphlet  prepared  by 

himself  containing  facts  relating  to  the  mone- 
Germany denies  .  .       __      TT  . 

that  the  Reichs-    tary  crisis,   Mr.  Hartung  of  Germany  desired 

bank  has  ever  re- to  make  a  correction.  It  was  stated  in  the 
'  pamphlet  that  in  1888  the  Reichsbank  had 
refused  to  pay  gold.  He  wished  to  say  that  this  was  an 
entire  mistake.  The  Reichsbank  had  never  "upon  any 
occasion  or  under  any  pretext  "  refused  to  redeem  its  notes  in 
gold  or  made  difficulties  about  paying  gold  for  export. 

Mr.  Allison  on  behalf  of  the  United  States  then  presented 
the  plan  and  programme  of  the  United  States.  This  was  in 
the  form  of  a  resolution,  "  That  in  the  opinion  of  this  con- 
ference it  is  desirable  that  some  measures  should  be  found 
for  increasing  the  use  of  silver  in  the  currency  systems  of 
the  nations."  He  desired  that  plans  and  proposals  to  this 
end  should  be  presented  by  delegates  from 

Programme  of       other  countries,  which  should  have  precedence 

the  United  .. 

States.  m  the  discussion,  but  he  would  nevertheless 

offer  (i)  the  plan  of  Mr.  Moritz  Levy  in  the 
conference  of  1881,  (2)  the  plan  of  the  late  Dr.  A.  Soetbeer. 
Lastly  he  would  offer  the  plan  prepared  by  the  delegates  of 
the  United  States,  that  of  international  bimetallism,  or  the 
unrestricted  coinage  of  both  gold  and  silver  of  full  debt-pay- 
ing power,  at  a  common  ratio.  The  Levy  plan  proposed 
the  withdrawal  from  circulation  of  all  gold 
pieces  a°d  all  paper  money  of  less  denomi- 
nation than  20  francs  in  order  to  make  room 
for  silver  coins  or  silver  certificates.  The  Soetbeer  plan  em- 
braced the  Levy  plan  with  a  number  of  technicalities  which 


THE  BRUSSELS  MONETARY  CONFERENCE.  79 

it  is  not  necessary  to  describe.  "Our  country,"  said  Mr. 
Allison,  "  in  its  currency  and  in  all  its  money  rests  upon  the 
gold  standard.  Our  statutes  declare  that  it  is  the  settled 
purpose  and  policy  of  the  United  States  to  maintain  silver 
and  gold  in  circulation  at  par  with  each  other  and  there  is 
no  currency  in  circulation  in  the  United  States,  whether  it 
be  paper  or  silver,  that  is  not  convertible  into  gold  at  the 
will  of  the  holder.  The  United  States  in  its  legislation  and  in 
its  policy  has  aided  to  sustain  silver  in  the  currency  of  the 
world,  and  it  is  because  of  the  desire  of  our  people  for  an  in- 
creased monetary  use  of  silver  that  our  President,  supported 
by  both  houses  of  Congress,  has  proposed  this  conference." 
Mr.  de  Rothschild  (Great  Britain)  made  a  proposal  in 
these  words:  "The  American  Government  are  purchasers 
of  silver  to  the  extent  of  54  millions  of  ounces  yearly,  and  I 
would  suggest  that  on  condition  these  purchases  were  con- 
tinued, the  different  European  powers  should  combine  to 
make  certain  yearly  purchases,  say  to  the  extent  of  about 
^"5,000,000  sterling  annually,  which  purchases 
to  be  continued  over  a  period  of  five  years  at 
a  price  not  exceeding  43  pence  per  ounce 
standard,  but  if  silver  should  rise  above  that  price,  the  pur- 
chases for  the  time  being  to  be  immediately  suspended. " 
Mr.  de  Rothschild  expressed  the  opinion  that  if  this  confer- 
ence should  break  up  without  arriving  at  any  definite  result 
a  monetary  panic  would  ensue,  the  far-spreading  effects  of 
which  it  would  be  impossible  to  foretell. 

Mr.  Tirard  (France)  said  that    his  country  had  an  enor- 
mous quantity  of  silver,  which  imposed  upon 

France  does  not    her  the  greatest  prudence  and  that  she  could 
want  any  more 

Silver.  n°t  accept  any  proposal  unless  upon  the  con- 

dition that  that  stock  of  depreciated  metal 
should  not  be  increased,  or  if  increased  that  it  should  not 
be  without  very  serious  compensations.  He  was  disappointed 


80  MONE  Y. 

that  the  delegates  of  the  United  States  had  put  forward  sub- 
sidiary proposals  to  be  discussed  in  advance  of  the  proposal 
which  they  personally  favored.  He  reserved  absolute  and 
complete  liberty  of  action  for  himself  and  his  colleagues. 

Count  Alvensleben  (Germany)  made  the  following  decla- 
ration : 

"Germany,  being  satisfied  with  its  monetary  system,  has 
no  intention  of  modifying  its  basis.  The  imperial  govern- 
ment does  not,  however,  fail  to  recognize  that  the  continual 
oscillation  and  considerable  fall  of  silver  are  much  to  be 
regretted  from  an  economic  point  of  view,  and 
cUnesTotake  tnat  ^  would  be  advantageous  to  the  economic 

Part  in  the  Dis-  interests  of  the  empire  if  the  evils  could  be 
cussion  or  vote. 

remedied  in  a  lasting  manner.      Upon  these 

considerations  the  Imperial  Government  felt  that  it  ought  to 
accept  the  invitation  of  the  United  States  to  this  conference. 
None  the  less,  in  view  of  the  satisfactory  monetary  situation  of 
the  empire,  the  Imperial  Government  has  prescribed  the  most 
strict  reserve  for  its  delegates,  who,  in  consequence,  cannot 
take  part  either  in  the  discussion  or  in  the  vote  upon  the  res- 
olution presented  by  the  delegates  of  the  United  States." 

Count  Khevenhuller-Metsch  (Austria-Hungary)  said  that 
under  the  instructions  he  had  received  from  his  govern- 
ment he  should  be  unable  to  take  part  in  the 
Austria  and  Rus-  discussions  or  the  vote. 

vote>  Prince  Ourousoff  (Russia)  said  that  he  was 

not  allowed  to  vote  upon  proposals  which  had 
a  definite  character  or  involved  practical  resolutions. 

Baron  de  Renzis  (Italy)  and  Mr.  DeVolder  (Belgium)  said 
that  their  countries,  being  bound  by  treaty  with  the  members 
of  the  Latin  Union,  could  not  assume  an  attitude  different 
from  that  of  the  other  members  of  the  Union. 

The  delegates  of  Roumania,  Portugal,  Turkey  and  Greece 
said  that  they  could  not  take  part  in  the  discussion  or  vote. 


THE  BRUSSELS  MONETARY  CONFERENCE.  81 

Mr.   Van    den    Berg    (the    Netherlands)    said    that   his 

government  would  support  the  proposal  submitted  by  the 

delegates  of  the  United  States  without  binding 

otherXountries    tnemselves  in  regard  to  the  means  of  carrying 

it  out. 

Mr.  Mier  y  Celis  (delegate  of  Mexico)  made  a  similar 
declaration. 

Mr.  Tietgen  (Denmark)  said  that  he  should  vote  on  the 
resolution,  but  in  so  doing  should  not  undertake  any  en- 
gagement. 

Third  Session,  November  28.  After  a  brief  discussion  a 
committee  of  thirteen  members  was  appointed  to  consider 
the  proposal  submitted  by  Mr.  de  Rothschild  and  such  other 
proposals  as  had  been  or  might  be  offered. 

Fourth  Session,  December  2.  The  Committee  made  its 
report.  The  Rothschild  proposal  was  first  considered. 
Preliminary  to  such  consideration  the  committee  inquired  : 
(i)  whether  there  was  any  practical  means  of  restricting  or 
regulating  the  output  of  silver,  and  it  came  to  the  conclusion 
that  there  was  none  ;  (2)  what  was  the  probable  future  annual 
production  of  silver?  and  it  received  from  the 

Report  on  the        delegates  of  Mexico  and  the  United   States 

Rothschild  Fro-  ... 

posai.  the  opinion  that  the  maximum  production  had 

already  been  reached  ;  (3)  what  was  the  future 
policy  of  the  United  States  with  reference  to  the  purchase 
of  silver  ?  and  it  received  from  Mr.  Cannon  the  opinion 
that,  if  some  arrangement  were  not  reached  by  this  Con- 
ference, the  Silver  Purchase  Act  of  1890  would  be  repealed  ; 
(4)  what  was  the  future  policy  of  British  India  ?  and  it  re- 
ceived from  Sir  G.  Molesworth  the  opinion  that,  failing  any 
definite  action  by  this  Conference,  British  India  would  close 
its  mints  to  silver  and  take  steps  looking  to  the  adoption  of 
the  gold  standard.  Against  the  Rothschild  plan  the  argu- 
ment was  advanced  that  it  was  an  attempt  to  interfere  with 


\ 


82  MONEY. 

a  natural  economic  law,  which  must  sooner  or  later  over- 
come any  artificial  arrangement,  and  that  it  was  impossible 
to  set  any  limit  to  the  sacrifices  into  which  the  nations 
might  be  drawn.  It  was  said  that  a  maximum  sum  and  a 
definite  time  were  fixed  in  the  proposal  and  that  the  experi- 
ment would  be  worth  its  cost.  To  this  it  was  answered  that 
an  experiment  on  a  larger  scale  had  already  been  made  in 
the  purchases  of  the  United  States  from  1878  to  the  present 
time,  notwithstanding  which,  the  price  of  silver  had  fallen 
continuously  except  during  a  short  speculative  period.  In 
the  course  of  the  discussion  it  was  ascertained  that  the 
United  States,  Mexico  and  British  India  could  only  agree  to 
the  Rothschild  proposal  in  the  event  that  the  newly-bought 
silver  should  be  used  as  money.  The  question  was  then 
raised  how,  in  case  the  proposal  were  adopted,  the  silver 
should  be  purchased,  whether  by  a  central 

committee*6  ^  organization  or  by  each  state  acting  sepa- 
rately. Before  reaching  a  decision  on  this 
point  a  vote  was  taken  on  the  question  whether  the  dele- 
gates would  recommend  the  Rothschild  plan  to  their  govern- 
ments, if  it  should  be  adopted,  and  it  was  decided  in  the 
negative  by  six  yeas  to  seven  nays.1  A  vote  was  then  taken 
on  the  Moritz  Levy  plan  and  it  was  adopted  by  a  large 
majority,  but  Sir  Charles  Fremantle  said  that  he  could  not 
recommend  this  plan  to  his  government  except  in  connection 

1  The   proceedings   in   committee   were  secret,  but  the  subsequent 
debate  showed  that  the  vote  was  as  follows  : 

Yea.  Nay. 

Mr.  CANNON  (United  States).  Mr.  CRAMER-FREY  (Switzerland). 

Mr.  CASASUS  (Mexico).  Mr.  DE  FOVILLE  (France). 

Sir  C.  FREMANTLE  (Great  Britain).     Mr.  FORSSELL  (Sweden). 
Sir  G.  MOLESWORTH  (India).  Mr.  RAFFALOVICH  (Russia). 

Mr.  DE  OSMA  (Spain).  Mr.  SAINCTELETTE  (Belgium). 

Mr.  VAN  DEN  BERG  (Netherlands).     Mr.  SIMONELLI  (Italy). 

Mr.  TIETGEN  (Denmark). 


THE  BRUSSELS  MONETARY  CONFERENCE.  83 

with  the  Rothschild  plan,  or  some  other  plan  supported  by 
a  preponderating  majority  of  the  great  powers.  It  was 
announced  that  this  was  not  the  final  report  of  the  com- 
mittee. 

Lieutenant-General  Strachey  (British  India)  made  a  brief 
statement  of  the  difficulties  pressing  upon  his  govern- 
ment by  reason  of  the  decline  of  silver  and  said  that 
he  should  not  be  able  to  support  any  proposal  that  was 
not  of  a  distinctly  practical  character.  By  this  he  meant 
one  which  had  the  support  of  countries 
Vi^kortt*1*11  sufficient  in  number  and  financial  impor- 
tance to  give  reasonable  assurance  of  its 
being  really  effective  and  not  involving  future  prolonged 
discussion.  Considering  the  attitude  of  delegates  toward 
the  Rothschild  proposal,  as  indicated  by  the  report,  he 
feared  that  it  would  be  impossible  for  him  to  support  it, 
although,  had  it  been  more  favorably  received  he  should 
have  been  glad  to  submit  it  to  his  government,  subject  to 
certain  modifications  which  his  instructions  imposed  upon 
him. 

Mr.  Allard  (Belgium)  considered  the  Rothschild  proposal 
inadequate.     In  his  opinion  there  was  a  scarcity  of  gold  in 
the  world  and  a  fall  of  prices  in  consequence.     Why  should 
the  Bank  of  France  with  its  enormous  stock  of  gold  make 
difficulties  about  paying  out  that  metal  unless  it  were  really 
scarce  ?     What  was  to  be  thought  about  the 
borrowing  of  ,£3,000,000  gold  by  the  mono- 
metallic Bank  of  England  from  the  bimetallic 
Bank  of  France  ?     "  Is  the  system  of  the  bank  which  con- 
fers the  benefit,  or  of  that  which  receives  it,  to  be  preferred 
by  us  ?     I   do  not  hesitate  to  give  the  preference  to  the 
Bank  of  France,  which  conferred  the  benefit,  although  that 
bank  is  absolutely  bimetallic,  and  my  conclusion  is  that  of 
the  two  banking  systems  I  prefer  that  which  is  based  upon 


84  MONEY. 

the  two  metals."  1  Returning  to  the  Rothschild  proposal  he 
held  that  the  plan  would  be  abortive  for  the  same  reasons  that 
the  American  purchases  had  been  ineffectual  to  stop  the  fall 
of  silver,  which  fall  was  really  an  appreciation  of  gold.  The 
proof  of  this  was  that  general  prices  had  not  fallen  in  the 
silver  standard  countries,  India  and  Mexico.  Referring  to  Mr. 
Rothschild's  prediction  that  if  the  conference  should  break 
up  without  arriving  at  any  definite  result  a  terrible  monetary 
panic  would  ensue,  Mr.  Allard  said  that  this  panic  would 
inevitably  take  place  at  the  doors  of  the  Bank  of  England. 
Mr.  Bertram  Currie  (Great  Britain)  saw  no  serious  evils 
resulting  from  the  disuse  of  silver  as  the  standard  of  value. 
This  had  come  to  pass  by  the  process  of  natural  selection 
and  any  artificial  attempt  to  arrest  it  was  doomed  to  failure. 
We  were  asked  to  do  something  to  raise  the  prices  of  com- 
modities. Such  an  object  was  entirely  opposed  to  the 
economic  doctrines  accepted  in  England. 
"Cheap  goods,  not  dear  goods,  plenty  and 
not  scarcity  have  always  been  held  to  be  the 
conditions  of  profitable  trade."  Still  it  had  never  been 
proved  that  the  general  fall  of  prices  had  been  brought 
about  by  the  scarcity  of  gold  and  he  did  not  believe  in  that 
theory.  The  wealth  of  a  nation  did  not  depend  upon  the 
amount  of  gold  and  silver  it  possessed.  The  contrary  was 
much  nearer  to  the  truth,  and  it  might  be  argued  that  the 

1  The  word  bimetallic  is  not  applicable  to  a  bank  in  any  case,  but  if  it 
were  so  would  fail  of  application  where  the  amount  of  the  silver  coinage 
is  limited  by  law.  If  the  Bank  of  France  is  bimetallic  because  it  receives 
silver  five-franc  pieces  on  deposit,  the  amount  of  which  cannot  be  in- 
creased, then  it  is  also  trimetallic,  because  it  receives  a  certain  amount 
of  bronze  coins  also.  The  Bank  of  France  holds  about  $400,000,000 
gold  and  about  $250,000,000  silver.  Mr.  Allard  apparently  meant  to 
say  that  he  considered  the  bank  stronger  than  it  would  be  if  its  whole 
metallic  stock  were  gold.  In  this  the  bank's  officers  would  not  agree 
with  him. 


THE  BRUSSELS  MONETARY  CONFERENCE.  85 

more  prosperous  and  civilized  a  nation  becomes  the  less 
occasion  has  it  to  use  the  precious  metals  and  the  smaller  is 
the  stock  it  requires  for  its  transactions. 

Mr.  Allison  moved  that  the  discussion  be  adjourned  till 
Tuesday  in  order  to  give  the  delegates  of  the  United  States 
time  to  make  themselves  thoroughly  acquainted  with  the 
report  of  the  Committee.  This  motion  was  agreed  to. 

Fifth  Session,  December  6.  Sir  Rivers  Wilson  (Great 
Britain),  speaking  for  himself  and  colleague  Sir  Charles 
Fremantle,  said  that  their  faith  was  that  of  the  school  of 
monometallism  pure  and  simple.  They  did  not  admit  that 
any  other  system  than  that  of  the  single  gold  standard  would 
be  applicable  to  their  country.  The  question 
to  be  considered  now  was  whether  the  Roth- 
schild or  the  Levy  plan,  one  or  both,  had  the 
prospect  of  meeting  such  a  preponderance  of  support  as 
would  justify  the  representatives  of  Great  Britain  in  recom- 
mending them  to  the  consideration  of  their  government. 
Mr.  Rothschild's  plan  had  not  received  such  support.  The 
Levy  plan  involves  the  withdrawal  of  the  half-sovereigns 
from  circulation.  Great  Britain  would  be  unwilling  to  sub- 
mit to  this  inconvenience  unless  it  were  presented  in  con- 
junction with  a  plan  offering  advantages  which  a  preponder- 
ant majority  of  the  Powers  would  recognize. 

Mr.  McCreary  (the  United  States)  could  not  consider  the 
Rothschild  proposal  adequate  nor  could  he  agree  that  it  was 
a  just  and  proper  remedy  "for  the  American  Government  to 
continue  the  purchase  of  silver  bullion  to  the  extent  of  fifty- 
four  million  ounces  yearly  at  a  price  not  exceeding  one  hun- 
dred cents  to  the  dollar,1  on  the  condition  that  European 

1  Probably  Mr.  McCreary  meant  by  this  phrase  that  under  the  Roth- 
schild plan  the  United  States  would  be  obliged  to  continue  buying,  even 
if  silver  should  rise  to  $1.29.29  per  ounce  standard,  at  which  rate  the 
metal  in  the  silver  dollar  would  be  worth  one  hundred  cents. 


86  MONEY. 

Powers  make  yearly  purchases  amounting  to  five  millions  of 
pounds  sterling  for  5  years  at  a  price  not  exceeding  43 

pence  per  ounce  standard,  and  if  silver  should 
Mr.  McCreary         . 
considers  the        rlse   above  that  price   the  purchases  for  the 

Rothschild  Plan  time  being:  to  be  immediately  suspended.  I 
Inadequate.  .  * 

cannot  quite  see  why  we  in  America  should 

be  required  to  pay  if  necessary  one  hundred  cents  to  the 
dollar  while  European  powers  only  pay  not  exceeding  73 
cents  to  the  dollar  and  the  purchases  to  stop  if  silver  should 
rise  above  that  price."  Mr.  McCreary  then  went  into  a 
general  argument  in  favor  of  international  bimetallism. 

Mr.  de  Rothschild  said  that  after  the  important  declara- 
tion of  the  delegate  of  the  United  States  he  considered  it 
his  duty,  out  of  respect  to  the  conference,  to 

withdraw  his  Plan-  He  had  not  submitted 
his  plan  to  the  United  States  delegates  before 
handing  it  in,  but  he  had  sounded  them  on  the  subject  and 
had  believed  that  his  proposal  would  be  of  a  kind  to  give 
them  satisfaction.  One  of  them  had  just  pronounced  against 
the  adoption  of  the  plan,  and  it  only  remained  for  him  to 
withdraw  it. 

Mr.  Van  den  Berg  (the  Netherlands)  and  Sir  W.  Houlds- 
worth  (Great  Britain)  made  general  speeches  in  favor  of 
bimetallism. 

The  President  thought  it  his  duty  to  point  out  that  the  two 
excellent  speeches  which  had  just  been  made  had  no  bear- 
ing on  the  special  subject  of  discussion,  namely,  the  Levy 
plan.  He  would  ask  speakers  to  connect  their  remarks  as 
far  as  possible  with  the  discussion  of  the  report. 

Mr.  Sainctelette  (Belgium)  was  disappointed  that  some  of 
the  British  delegates  were  opposed  to  the  Levy  proposal. 
He  considered  the  withdrawal  of  gold  coins  smaller  than  20 
francs  very  desirable,  because  they  wear  out  three  times  as 
fast  as  large  ones.  There  was  no  less  than  ^23,000,000  of 


THE  BRUSSELS  MONETARY  CONFERENCE,  87 

small  gold  coins  in  England  which  might  be  replaced  by 
silver.  There  was  no  reason  why  this  replacement  should 
be  made  dependent  on  the  Rothschild  plan  or  any  other 
plan.  All  plans  to  be  generally  acceptable,  must  be  in  the 
nature  of  compromises,  and  accordingly  he  did  not  under- 
stand why  the  delegates  of  the  United  States 

Mr.  Sainctelette    did  not  give  more  assistance.     He  had  asked, 
favors  the  Levy  .  . 

Plan>  in  the  committee,  whether  the  silver-producing 

countries  could  not  do  something  by  tax  or 
otherwise  to  curtail  the  production  of  silver,  and  they  had 
replied  in  the  negative.  How  could  you  raise  the  selling 
price  unless  you  raised  the  net  cost  of  production?  The 
way  to  raise  the  net  cost  of  production  was  to  impose  a  tax. 
There  were  many  more  unpopular  taxes  than  one  on  silver 
mines.  He  did  not  see  any  obstacle  to  that  solution  of  the 
question.  One  objection  raised  to  such  a  tax  was  that  the 
mines  were  largely  owned  in  Europe,  but  he  was  not  aware 
that  European  interests  were  an  object  of  such  extreme  soli- 
citude on  the  part  of  the  United  States.  He  hoped  that  the 
delegates  of  both  Great  Britain  and  the  United  States  would 
make  more  satisfactory  declarations. 

Sir  Charles  Fremantle  (Great  Britain)  said  that  by  reason 
of  the  large  amount  of  half  sovereigns  in  circulation  (about 
^"22,500,000)  Great  Britain  would  be  making 
a  larSe  sacrifice  in  surrendering  the  con- 
venience which  their  circulation  afforded. 
He  asked  the  gentlemen  whether  Belgium  had  any  small 
gold  coins  to  surrender  under  the  proposed  plan. 

Mr.  Sainctelette  replied  that  Belgium  had  none,  but  he 
was  convinced  that  if  she  had  them  she  would  be  none  the 
less  ready  to  adopt  the  proposal. 

Mr.  Cannon  (the  United  States)  said  that  it  would  not  be 
more  reasonable  to  tax  silver  than  to  tax  copper  or  lead. 
Such  a  tax  would  be  contrary  to  the  spirit  o*f  the  institu- 


88  MONEY. 

tions  of  the  United  States,  if  not  a  violation  of  the  Consti- 
tution. 

Sir  G.  Molesworth  (British  India)  made  a  general  speech 
in  favor  of  international  bimetallism.  He  did  not  believe  in 

the  efficacy  of  simple  purchases  of  silver.     He 
Sir  G.  Moles-         ,      ,    , 
worth  does  not      nad  ior  years  publicly  expressed  the  opinion 

believe  in  Silver  that  the  purchases  of  silver  under  the  Bland 
Purchases.  .  .  ., 

Act  and  similar  measures  were  opposed  to  the 

first  principles  of  monetary  science  and  must  end  in  disaster, 
from  which,  if  the  United  States  had  up  to  the  present 
escaped,  it  was  because  of  the  great  expansion  of  its 
population  and  industry. 

Appended  to  the  proceedings  of  the  fifth  session  is  a 
proposal  of  Sir  W.  Houldsworth,  of  which  the  principal 
points  are  :  That  a  bimetallic  union  be  formed  by  as  many 
nations  as  choose  to  go  into  it,  and  that  the  nations  which 
prefer  to  retain  the  single  gold  standard  shall  receive  deposits 
of  silver  bullion  at  their  mints  and  give  re- 
Sir  w.  Honids-  ceipts  therefor  in  ounces,  each  receipt  to 
worth's  Propo- 
sal, specify  the  equivalent  gold  value  of  the  same 

at  a  specified  rate  per  ounce  to  be  determined 
by  international  agreement,  the  quantity  of  silver  specified 
in  the  receipt  to  be  delivered  by  weight  to  the  bearer  when 
called  for,  and  in  no  other  manner  and  on  no  other  account 
whatsoever,  "  these  receipts  to  circulate  as  money  in  all 
transactions."  He  believed  that  such  a  bimetallic  union 
would  keep  gold  and  silver  coins  at  par  with  each  other  and 
keep  the  silver  deposit  receipts  at  par  with  gold. 

Sixth  Session,  December  8.  Mr.  Allison  (United  States) 
suggested  a  provisional  abandonment  of  the  Levy  plan  in 
order  to  begin  at  once  the  discussion  on  bimetallism.  The 
motion  was  agreed  to. 

Mr.  Raffalovich  (Russia)  considered  that  facts  had  de- 
monstrated that  it  is  contrary  to  the  nature  of  things  to 


THE  BRUSSELS  MONETARY  CONFERENCE.  89 

establish  a  fixed  ratio  between  the  value  of  gold  and  the 
value  of  silver.  But  whatever  may  be  our  conception  of  an 
ideal  state  of  things,  we  have  to  consider  the  actual  execution 
and  carrying  out  of  that  conception.  He  agreed  with  Mr. 
Currie  that  the  more  a  country  advances  in  wealth  and 
civilization  the  less  is  its  need  of  the  precious  metals.  One 
of  the  sources  of  England's  strength  was  the  certainty  of 
gold  payment ;  and  although  the  basis  might  seem  narrow, 

the  narrowness  was  itself  not  without  advan- 
Mr.  Raffalovich  .  ... 

considers  Bi-        tages,  since  it  made  the  rate  of  discount  re- 

metallism  im-  sponsive  to  coming  dangers  and  thus  gave 
early  warning  of  impending  trouble.  The 
question  of  a  "defensive  premium"  having  been  touched 
upon  in  the  discussions,  he  called  attention  to  the  recent 
expression  on  that  point  by  M.  Leon  Say,  a  master  of 
monetary  science,  in  a  preface  he  had  written  to  a  French 
edition  of  Goschen's  "Theory  of  Foreign  Exchanges."  In 
this  preface  M.  Say  had  condemned  the  policy  of  establishing 
a  premium  on  gold  taken  for  export. 

Mr.  Van  den  Berg  (the  Netherlands)  said  that  the  Bank 
of  the  Netherlands  kept  its  foreign  balances  almost  exclu- 
sively in  London  and  Berlin,  and  very  little  in  Paris  and 
Brussels,  "  because  we  cannot  be  sure  in  advance  that  when 
our  bills  in  Brussels  and  Paris  fall  due  we  shall  be  paid  in 
gold,  should  circumstances  induce  us  to  ask  for  it,  without 
submitting  to  a  premium,  to  which  naturally  we  object." 

Mr.  Cramer-Frey  (Switzerland)  thought  that  if  the  plan  of 

purchasing  silver  were  adopted,  neither  Mr.  Rothschild  nor 

any  other  person  could  guarantee  that  at  the 

Switzerland  encj  of  the  period  of  trial  the  situation  might 
considers  it 

inadmissible.        n°t  De  worse  rather  than  better.     As  for  bi- 
metallism he   would  fail    of   his    duty    if    he 
ever  entertained  the  idea  that  that  system  was  admissible 
for  Switzerland.      He  and  his  collegue  had  received  the  most 


90  MONEY. 

formal  instructions  from  their  government  on  that  point. 
As  to  an  enlarged  use  of  silver,  it  would  be  impossible  in  the 
Latin  Union  countries  to  force  into  circulation  a  single  five- 
franc  piece  over  and  above  those  now  in  use.  If  France 
should  consent  to  withdraw  her  ten-franc  gold  pieces,  her 
actually  existing  five-franc  pieces  now  lying  idle  in  the  cel- 
lars of  the  bank  would  more  than  suffice  to  fill  the  vacuum. 
He  thought  that  the  evils  arising  from  silver  depreciation 
had  been  exaggerated.  The  foreign  trade  of  India  had 
more  than  doubled  since  1872,  and  even  the  Lancashire 
manufacturers,  who  complain  so  bitterly,  had  more  than 
doubled  their  exports  of  cotton  goods  to  India.  He  thought 
that  the  best  solution  would  be  found  by  giving  free  play  to 
natural  causes. 

Mr.  Andrews  (the  United  States)  made  a  speech  in  favor 
of  bimetallism.  He  warned  the  delegates  that  the  United 
States  would  not  give  up  gold  and  go  to  the  silver  basis,  nor 
would  the  United  States  go  on  forever  sustaining  the  price 
of  silver.  "  That  would  be  more  than  Europe  has  a  right 
to  ask  of  us."  Mr.  Cleveland  had  been  elected  president 
as  a  pronounced  and  uncompromising  adherent  of  the  gold 

policy.  Therefore  the  time-honored  monetary 
Mr.  Andrews  fa-  policy  of  the  country  would  never  be  changed 
Usm.  by  his  consent.  Still,  the  United  States  wished 

to  rehabilitate  silver  in  order  to  "  stay  that 
baneful,  blighting,  deadly  fall  of  prices  which  for  nearly 
thirty  years  has  infected  with  miasma  the  economic  life- 
blood  of  the  whole  world."  Many  writers  had  fallen  into  a 
curious  confusion  by  "  identifying  fall  of  general  prices  with 
intrinsic  cheapening  of  commodities."  Decrease  in  intrinsic 
cost  was  a  blessing,  but  a  general  fall  of  prices  was  an  abso- 
lute and  unmitigated  curse  to  human  civilization.  Low 
prices  are  not  to  be  condemned,  but  "the  everlasting  fall  of 
prices,  the  act  of  sinking,  is  the  accursed  thing." 


THE  BRUSSELS  MONETARY  CONFERENCE  91 

Mr.  Zeppa  (Italy)  said  that  an  inevitable  law  had  impelled 
civilized  nations  to  pass  gradually  to  gold  monometallism. 
The  working  of  this  law  had  been  accelerated  perhaps  by 
the  excessive  production,  and  consequent  fall,  of  silver,  as 
compared  with  gold,  causing  a  suspension  of  its  coinage  by 
the  bimetallic  states,  which  suspension  had  without  doubt 
emphasized  the  depreciation.  A  majority  of  civilized  states, 
too,  had  been  under  a  re'gime  of  inconvertible  currency. 
Their  people  thus  became  habituated  to  paper, 
** °P~  anc*  w^en  sPecie  payments  were  resumed  they 
could  not  reconcile  themselves  to  the  use  of 
heavy  silver  money.  As  the  law  of  least  resistance  impels 
nations  towards  the  ideal  of  gold  monometallism,  so  it  leads 
them  to  economize  the  use  of  all  coined  metal  by  means  of 
clearing  houses  and  other  instruments-  of  credit.  Taking 
these  things  into  consideration  it  is  astonishing  that  persons 
admittedly  of  high  intelligence  and  genuine  culture  are  to 
be  found  who  would  wish  to  lead  the  nations  backward  and 
to  reestablish  bimetallism.  No  international  agreement, 
however  numerous  the  contracting  states,  could  reestablish 
the  old  relation  between  silver  and  gold.  Nevertheless  he 
saw  evils  in  a  sudden  adoption  by  all  the  nations  of  the 
single  gold  standard,  and  for  this  reason  he  had  favored 
the  Rothschild  proposal  as  a  middle  course,  avoiding  bimet- 
allism on  the  one  hand  and  the  too  hasty  adoption  of  the 
gold  standard  on  the  other. 

Mr.  Weber  (Belgium)  wished  to  meet  the  arguments  of 
those  who  repeat  with  unabashed  persistence  that  the  fall  of 
prices  is  due  entirely  to  the  scarcity  of  metallic  money. 
According  to  these  modern  Jeremiahs  the  fall  in  the  price 
of  cereals,  of  cotton,  of  wool,  etc.,  results  from  a  scarcity  of 
coin  in  the  monetary  circulation  of  this  world.  The  enor- 
mous areas  that  have  been  put  under  cultivation  in  the  New 
World  and  at  the  Antipodes  are  ignored.  For  instance  a 


92  MONEY. 

few  years  ago  America  produced  an  annual  crop  of  six  mil- 
lion bales  of  cotton  ;  in  1891  it  was  nine  millions.  In  1878 
Australia  had  62  million  sheep,  in  1891  she  had  124  mil- 
lions; that  is,  exactly  double.  Are  we  not  criticising  Provi- 
dence if  we  complain  of  the  cheapness  of  prod- 
Mr.  Weber  dis-  ucts  when  that  cheapness  is  in  consequence 
cusses  the  Fall 
of  Prices.  P*  tneir  abundance?  Those  who  groan  at 

the  fall  of  prices  fail  to  see  that  certain  prod- 
ucts have  gone  up  and  down  since -1873  exactly  as  they 
did  before  that  date.  ,  This  proves  that  there  is  no  general 
and  unvarying  cause  that  affects  prices,  but  that  it  is  the 
abundance  and  scarcity  of  the  products  themselves.  No 
doubt  the  universal  employment  of  silver  as  money  would 
have  a  powerful  effect  on  prices,  but  it  would  be  transitory 
and  would  be  followed  by  inevitable  reaction.  It  was  not 
true  that  there  had  been  a  scarcity  of  gold  in  recent  years. 
On  the  contrary  the  gold  reserves  of  the  banks  of  issue  of 
the  world  had  increased  by  2661  millions  of  francs  from 
1 88 1  to  1891  and  the  stock  in  the  Bank  of  France  showed 
a  further  increase  of  200  millions  of  francs  from  1891  to 
1892.  Moreover  the  trade  of  the  world  had  grown  rapidly 
during  the  same  period  of  time,  the  exports  and  imports  of 

three  countries    (France,   the   United   States, 
What  will  hap- 
pen  when  the        anc*  Great   Britain)  having   increased   nearly 

Proposed  Agree-  3000  millions  of  francs  from  1880  to  1800, 
ment  ends  ?  . 

snowing  that  commerce  was  not  fettered  by  a 

scarcity  of  metallic  money.  Suppose  bimetallism  estab- 
lished. There  is  a  limit  of  time  to  every  international 
agreement.  At  the  expiration  of  it,  as  at  the  expiration  of 
the  Latin  Union,  each  country  must  take  care  of  the  coins 
that  bear  its  stamp,  yet  it  is  a  part  of  the  plan  that  no 
country  shall  refuse  its  stamp  to  any  metal  offered  to  it. 
The  work  done  by  a  mint  is  not  in  proportion  to  the  size  of 
the  country  that  operates  it.  The  losses  which  would  result 


THE  BRUSSELS  MONETARY  CONFERENCE.  93 

from  the  breaking  up  of  the  Latin  Union  are  calculable,  but 
those  resulting  from  the  expiration  of  a  bimetallic  treaty  are 
incalculable. 

Mr.  Boissevain  (the  Netherlands)  said  that  if  we  were  to 
credit  the  speech  of  Mr.  Weber  we  should  be  compelled  to 
ask  what  we  have  come  here  to  do.  Mr.  Weber  had  dealt 
with  the  fall  of  prices,  but  he  had  not  noticed  the  vast  dis- 
tinction there  is  between  plentiful  supplies  and  a  fall  of 
prices.  Plenty  results  from  improvement  in 

Mr.  Boissevain     the  conditions  of  production  and  transporta- 

on  the  Fall  of 

Prices.  tlon-     But  how  is  the  existence  of  plenty  to 

be  established  if  not  by  an  increase  of  pros- 
perity ?  Has  there  been  any  increase  of  general  prosperity 
in  recent  years  ?  Have  we  not,  on  the  contrary,  had  a  great 
depression  of  trade?  Nobody  could  prove  that  we  have 
passed  through  a  period  of  prosperity,  and  yet  prosperity 
ought  to  have  been  the  result  of  plentiful  supplies  of  prod- 
ucts. 

Seventh  Session,  December  10.  Mr.  Simonelli  (Italy) 
said  that  the  withdrawal  of  state  notes  of  ten  and  five 
francs  by  Italy  would  not  make  room  for 
Other  opinions,  any  more  silver  in  that  country  since  the 
notes  were  already  represented  by  silver 
five-franc  pieces  circulating  beyond  her  borders,  which 
would  return  home  at  once  if  the  small  notes  were  with- 
drawn. 

Mr.  Sainctelette  (Belgium)  said  that  the  United  States 
were  wrong  in  supposing  that  they  could  remedy  the  accu- 
mulation of  silver  by  creating  a  purchaser  without  there 
being  any  real  needs  to  be  satisfied.  In  his  opinion  the 
purchases  already  made  had  only  stimulated  the  production 
of  silver. 

Mr.  Forssell  (Sweden)  considered  the  ratio  between  gold 
and  silver  the  first  and  last  problem  to  be  decided  in  taking 


94  MONEY. 

up  the  question  of  universal  bimetallism.      He  therefore  de- 
sired to  ask  the  delegates  of  the  United  States 

Sdoto1?*?*116  as  a  whole  what  ratio  they  would  consider 
the  most  practical  and  equitable,  whether 
1^/2  or  1 6  to  i,  or  a  ratio  nearer  the  market  value  of 
silver. 

Mr.  Allison  replied  that  the  delegation  had  had  no  con- 
ference on  the  subject.  They  would,  of  course,  prefer  their 
own  ratio  of  16  to  i,  but  they  would  accept  that  of  15}^  if 
it  were  more  agreeable  to  those  countries  which  had  the 
largest  amount  of  silver.  He  agreed  that  the  question  of 
ratio  was  a  fundamental  one,  but  he  thought  that  a  more 
important  one  was  the  question  how  many  countries  would 
join  in  a  bimetallic  treaty  at  any  ratio. 

Mr.  Forssell  said  that  the  interesting  reply  of  Mr.  Allison 
led  him  to  ask  what  number  of  states  would 

HowmanyCoun-  be    necessary    to    make    a    bimetallic    treaty 
tries  are  Neces-        „ 

sarye  enective.     In  the  way  of  rendering  the  dis- 

cussion   practical,    a    reply    to    this    question 
would  be  of  great  value. 

Mr.  Tirard  (France)  said  that  France  had  no  cause  to 
complain  of  the  present  monetary  situation  and  that  she  did 
not  complain.  She  had  endeavored  to  come  to  an  agree- 
ment with  the  United  States  at  the  conference  of  1881,  which 
was  a  sort  of  continuation  of  that  of  1878. 
Later,  in  1889,  a  monetary  Congress  was  held 
in  Paris  during  the  Exposition,  but  nothing 
came  of  it.  France  is  the  country  of  all  others  which  has 
the  largest  quantity  of  metallic  money,  both  gold  and  silver. 
This  was  due  to  the  minute  subdivision  of  properties  and 
employments,  which  being  very  small  were  not  adapted  to 
the  use  of  bank  checks  to  the  same  extent  as  countries 
where  industry  is  more  consolidated  and  centralized.  The 
French  people,  therefore,  require  a  larger  amount  of  coin. 


THE  BRUSSELS  MONETARY  CONFERENCE.  95 

France  was  bimetallic  in  fact.1     She  ceased  to  coin  silver 

because  she  was  confronted  with  an  ever-in- 
^y  moreover.  creasing  volume  of  that  metal.  "  We  ceased 

to  coin  it  and  I  think  our  course  was  perfectly 
right."  Why  should  France  permit  the  free  coinage  of 
silver  when  she  is  already  amply  provided  with  it?  She 
alone  possesses  as  much  as  all  the  other  states  of  Europe 
put  together.  The  Bank  of  France  holds  as  much  as  all  the 
other  banks  together.  "  Consequently  I  have  the  right  to 
say  that  she  has  quite  enough."  Still  France  would  perhaps 
consent  to  do  what  was  asked  of  her  if  those  Powers  which 
are  wedded  to  monometallism  should  decide  to  adopt  the 
free  coinage  of  silver.  He  would  never  advise  his  govern- 
ment to  take  that  step  on  other  terms.  We  have  heard  the 
Minister  of  Germany,  the  Minister  of  Austria-Hungary,  and 

Sir  Rivers  Wilson  declare  that  their  countries 
ha^e^eVcoin-  ^ad  no  intention  of  modifying  their  monetary 
age  unless  Ger-  system,  with  which  they  declared  themselves 
Snd^oin1  En?"  satisned-  Hence  the  question  of  free  coinage 

is  decided  so  far  as  France  is  concerned.  He 
then  replied  to  the  remarks  of  Mr.  Van  den  Berg  touching 
the  defensive  premium  sometimes  put  on  gold  at  the  Bank 
of  France.  It  was  not  true  that  the  Bank  ever  exacted  a 
premium  when  gold  was  required  to  satisfy  a  legitimate 
demand  for  export.  "The  Bank  of  France,  when  it  finds 
itself  confronted  by  a  real  necessity,  does  not  hesitate  to 
place  at  the  disposal  of  importers  all  that  is  necessary  for 
the  purchase  of  the  raw  materials  and  food  needed  to  feed 
the  people  and  to  maintain  national  industry."  The  Bank 

1  Mr.  Tirard  here  repeats  the  error,  in  the  use  of  the  word  "  bi- 
metallic," that  Mr.  Allard  had  already  made.  In  a  subsequent  debate 
Mr.  Tirard  made  a  distinction  between  "  bimetallic  "  and  "  absolutely 
bimetallic,"  which  shows  that  he  was  not  very  careful  in  the  use  of 
words. 


96  MONEY. 

merely  puts  a  barrier  to  the  speculations  of  brokers  who  think 
less  of  the  interest  of  their  country  than  of  their  personal 

profit.  In  this  he  considered  that  the  Bank 
Policy  of  the  .  . 

Bank  of  France     was  doing  its  duty.1     In  regard  to  the  Moritz 

regarding  Gold  Levy  plan  he  said  that  France  had  little  interest 
**"*"  in  it,  having  no  bank  notes  smaller  than  fifty 
francs.  Her  five-franc  gold  pieces  had  disappeared.  If  it 
were  proposed  to  withdraw  those  of  ten  francs,  there  would 
be  opposition  on  the  part  of  the  public,  who  were  accus- 
tomed to  the  use  of  them,  and  who  would  not  like  to  handle 
two  five-franc  pieces  instead.  But  if  that  difficulty  were 
overcome,  there  would  still  be  no  room  in  France  for  ad- 

"*  l  The  Bank  of  France  is  a  private  institution,  although  its  governor 
and  two  deputy  governors  are  appointed  by  the  head  of  the  state.  Its 
situation,  as  regards  the  silver  five-franc  pieces,  is  in  no  wise  different 
from  that  of  any  other  corporation  or  person.  It  did  not  create  these 
pieces,  but  it  must  receive  them  from  its  customers  as  deposits  or  in 
payment  of  dues  to  itself  and  it  may  pay  them  to  its 

The  Bank  of  customers.     Accordingly  when   depositors   want  gold 

France's  Pre-         ,  .         .     _.     .    .          ... 

mium  on  Gold  exportation,  the  Bank  is  enabled  to  charge  a  pre- 

mium  for  it,    the   alternative   being  payment  in  sil- 
A  Profit  to  the       ver,   or   half    silver    and    half    gold.     The   premium 
Shareholders.        is    a    source    of    profit   to   the   shareholders   of   the 
Bank.     The  limit  to  the  possible  premium  is  the  cost 
p       .  of   collecting  gold    coins,    of   which    there   is   always 

a  large  amount  in  circulation  and  which  brokers  are 
ready  to  supply,  if  they  are  paid  for  their  trouble.  Sometimes  the 
Bank  charges  no  premium  ;  at  other  times  it  charges  a  fractiop  less 
than  the  cost  of  obtaining  gold  from  brokers.  If  it  should  charge  more, 
the  public  would  sell  their  gold  to  brokers  and  deposit  only  silver  at  tK. 
Bank.  M.  Tirard's  remarks  imply  that  the  Bank  has  some  private 
means  of  knowing  what  demands  for  gold  are  legitimate  and  what  are 
speculative,  but  people  who  are  not  in  the  secret  will  have  doubts  on 
that  point.  The  true  interest  of  Jacques  Bonhomme  is  to  pay  his  debts 
to  foreigners  as  cheaply  as  possible,  but  Jacques  is  easily  deceived  by 
high-sounding  phrases  about  the  national  industry,  and  the  interest  of 
the  country. 


THE  BRUSSELS  MONETARY  CONFERENCE.  97 

ditional  silver,  since  the  Bank  of  France  had  more  than  a 

thousand   million  francs  in  five-franc  pieces,  which  would 

flow  into  the  circulation,  taking  the  place  of 

Silver  ought  not   the  small  gold   coins.     In  his  opinion,  silver 

to  be  Inter-  .       .  , 

national  Money,   should  not  be  coined  for  the  account  of  private 

persons.  It  should  be  coined  to  as  limited  an 
extent  as  possible,  so  that  it  suffice  to  bring  that  metal  into 
the  daily  exchange  of  life,  and  to  make  it  a  national,  not  an 
international,  money. 

Mr.  Allison,  replying  to  Mr.  Forssell,  said  that  after  the 
declaration  made  some  days  since  by  Germany,  afterward 
that  of  England,  and  afterward  that  which  had  just  been 
made  by  the  State  which  was  at  the  head  of  the  Latin  Union, 
he  felt  that  a  reply  to  the  question  which  the  delegate  of 
Sweden  had  put,  before  Mr.  Tirard  began  speaking,  might 
be  deferred. 

Mr.  Cannon  (the  United  States)  was  surprised  by  the 
speech  of  Mr.  Tirard.  The  people  of  the  United  States  had 
supposed  that  France  and  the  Latin  Union,  being  the  largest 
holders  of  silver  in  the  world,  were  very  friendly  to  that 
metal  as  money,  but  we  find  that  while  they  are  glad  to  be 
present  at  the  conference  they  are  not  inclined  to  join  in  any 
agreement  as  to  the  better  use  of  silver  as  money ;  and  we 
find  to  our  surprise  that  England,  without  any  silver  of  con- 
sequence, suggests  its  purchase  and  use  as  a  money  metal. 
In  spite  of  this  apparently  opposite  state  of  affairs  he  hoped 

that  something  might  yet  be  accomplished, 
surprised  at  the  Mr.  Tirard  had  said  that  France  was  not 
Speech  of  Mr.  specially  interested  in  palliative  measures  to 

increase  the  price  of  silver,  being  able  to 
maintain  her  own  positition.  The  United  States  was  in  the 
same  position  ;  still  he  thought  it  would  be  better  if  some 
international  arrangement  could  be  made  to  use  both  gold 
and  silver  for  foreign  and  domestic  payments  at  some  ratio 


98  MONEY. 

to  be  agreed  upon.  He  could  not  consider  the  purchase  of 
thirty  million  ounces  of  silver  per  annum  by  European 
Powers  a  mere  palliative.  It  was  possible  that  this  purchase, 
added  to  other  demands,  might  be  the  bridge  to  join  the 
money  metals  together  at  some  parity.  The  United  States 
government  had  been  able  to  maintain  parity  between  its 
gold  and  its  silver  money  and  would  continue  to  do  so.  If, 
however,  silver  was  to  be  further  dishonored  and  used  only 
as  subsidiary  money  the  United  States  was  in  an  excellent 
position  to  take  advantage  of  that  state  of  affairs. 

Mr.  Tirard  replied  that  he  had  not  said  that  France  or  the 
Latin  Union  was  less  favorable  to  bimetallism  than  England. 
On  the  contrary  he  had  said  that  France  was  already  bi- 
metallic in  fact,  and  if  she  would  not  resume  the  free  coinage 
of  silver  and  become  absolutely  bimetallic  it  was  only  be- 
cause England  and  other  countries  had  said 

in  the  most  formal  wav  that  tneY  intended  to 
remain  monometallic.  He  was  sorry  that  the 
Rothschild  proposal  had  been  withdrawn,  because  he  would 
like  to  know  from  the  discussion  of  it  how  the  European 
silver  purchases  were  to  be  distributed.  He  was  convinced, 
without  having  any  information  on  the  point,  that  France, 
which  already  had  as  much  silver  as  all  the  rest  of  Europe 
combined,  would  be  given  the  largest  share.  It  was  just 
this  situation  which  France  could  not  accept. 

Eighth  Session,  December  13.  Sir  G.  Molesworth  (British 
India)  regretted  the  hasty  and  premature  declaration  of  Sir 
Rivers  Wilson,  of  uncompromising  hostility  to  the  double 
standard,  thus  prejudging  the  whole  case  before  an  oppor- 
tunity was  allowed  for  fair  discussion. 

Sir  Rivers  Wilson  said  that  as  his  govern- 

Grert  Britain        ment  could  not  admit  that  the  maintenance  of 

its   monetary   system    could   be   brought   into 

v  question,  he  had  made  that    declaration,  in  behalf  of  Sir 


THE  BRUSSELS  MONETARY  CONFERENCE.  99 

Charles  Fremantle  and  himself,  purely  out  of  respect  for  the 
delegates  and  in  order  to  shorten  their  labors  as  much  as 
possible.  He  was  authorized  by  Mr.  de  Rothschild  to  say 
that  he  wished  to  be  associated  in  those  remarks. 

Mr.  Forssell  (Sweden),  adverting  to  the  remark  of  Mr. 
McCreary  that  bimetallism  was  no  new  theory,  said  that 
what  was  absolutely  new  and  unknown,  both  in  theory  and 
practice,  was  the  double  standard  and  free  coinage  together 
imposed  upon  states  by  mutual  international  obligation. 
There  was  no  precedent  for  that.  Everybody  distrusts  sil- 
ver, everybody  seeks  to  keep  his  gold ;  and  it  is  at  this  very 
moment  that  everybody  is  asked  to  coin  the  disliked  silver 

in  unlimited  quantities,  while  remaining  free 
Mr.  Forssell  op- 
posed to  Bimetal-  to    Set    or    keep    his   gold   as    best    he    may. 

lism  in  every  Whatever  might  be  said  about  the  marvelous 
Way. 

stability  of  15^  to  i  under  the  old  regime  the 

historic  fact  is  that  the  actual  market  ratio  was  never  and 
nowhere  invariably  in  accord  with  the  legal  ratio.  The 
most  recent  historic  fact  and  the  most  conclusive  is  that  the 
divergence  between  the  two  has  sufficed  to  render  free 
coinage  impossible.  Now  an  ingenious  process  has  been 
imagined  of  forming  a  reservoir  so  large  and  so  extended 
that  beyond  it  there  would  be  no  country  capable  of  attract- 
ing gold  and  hence  that  the  yellow  metal 

would  not  flow  out  J  that  thus  the  stability  of 
the  ratio  would  be  guaranteed  and  a  premium 
on  gold  rendered  impossible.  In  speaking  of  the  value  of 
silver  we  always  think  of  gold.  Everybody  recognizes  the 
supreme  danger  of  a  premium  on  gold.  Hence  the  touch- 
stone of  the  bimetallic  system  is  its  ability  to  guarantee  us 
against  that  vital  danger.  Probably  the  aim  would  be  to 
unite  all  the  specie-paying  countries  of  America  and  Europe. 
It  would  not  be  possible  to  bring  in  the  paper-money  coun- 
tries or  those  of  the  far  East  which  have  the  single  standard 


100  MONE  Y. 

of  silver.  But  whatever  is  outside  of  the  agreement  must 
be  reckoned  with,  because  everything  outside  will  exercise 
an  attraction  on  the  depreciated  gold  of  Europe.  What 
would  happen  if  one  member  of  the  union  should  denounce 
the  treaty?  Moreover,  the  industrial  consumption  of  gold 
would  always  underlie  the  treaty  and  this  consumption  would 
be  quickened  by  any  depreciation  of  gold.  There  would 
always  be  a  drain  out  of  the  reservoir.  Then  the  question 
is  :  What  should  be  the  size  of  a  hogshead  to 

The  Hogshead        contain  a  certain  quantity  of  liquid  when  there 
and  the  Bung- 
le, is  no  possibility   of    stopping  the  bunghole  ? 

Again,  nobody  wants  more  than  a  few  ounces 
of  silver  in  his  pocket  or  his  till.  Bimetallism  obliges  people 
to  take  it  in  unlimited  quantities  ;  i.e.,  it  assigns  to  silver  a 
legal  monetary  function  in  excess  of  its  natural  monetary 
function.  Suppose  silver  were  made  legal  tender  under 
universal  free  coinage,  what  would  be  the  quantity  of  silver 
money  discharged  upon  the  world  ?  As  long  as  there  was 
an  existing  debt  to  be  paid  the  price  of  silver  would  rise. 
It  would  probably  advance  at  one  bound  30  or  40  per  cent. 
The  advance  in  price  would  stimulate  the  production  and 
also  check  the  industrial  uses.  But  the  preferences  of  people 

would  not  be  changed  by  the  torrent  of  silver 
What  would  the  .  . 

Banks  do  with      money  flowing  from,  the  mints.      1  hey  would 

their  Loads  of  not  want  to  carry  it,  or  to  house  it,  any  more 
than  before.  Hence  it  would  flow  to  the 
banks  which  could  not  refuse  it.  Their  vaults,  however,  are 
not  unlimited,  nor  can  they  relieve  themselves  of  the  neces- 
sity of  making  large  payments  of  metallic  money  to  each 
other.  The  same  reasons  which  have  caused  them  to  prefer 
gold  for  this  purpose  would  re-main  in  full  vigor.  The  con- 
sequence would  be  that  the  banks  which  had  to  receive  the 
large  payments  would  pay  something  to  get  gold.  This 
would  be  a  premium 'on  gold  following  infallibly  upon  the 


THE  BRUSSELS  MONETARY  CONFERENCE.         101 

new  system.     But  a  premium  on  gold,  however  small,  is  the 

upheaval  of  the  system  itself  and  the  downfall  of  universal 

bimetallism.     Each  nation  would  seek  to  pro- 

tect  itself'  the  treat>"  WOuld  be  denounced>  ^ 
coinage  would  be  suspended  and  liquidation 

would  begin.  That  liquidation  is  the  translation  into  prose 
of  the  poetry  of  bimetallism.  The  states  of  the  Latin  Union 
entered  one  fine  day  under  the  arches  of  a  bimetallic  system 
supported  by  pillars  of  gold  and  silver  harmonized  at  15^ 
to  i.  Silver  fell,  the  white  pillars  became  walls  which 
barred  the  outlet.  The  inmates  were  imprisoned.  In  prison 
tempers  are  easily  soured,  and  the  Latin  Union 

Which  would  be   states    no    longer   bless    the   treaty  of    i86c. 
the  Upheaval  of  *L  .     :u     ,  , 

the  System.          How  can  the  European  states,  in  the  face  of 

these  facts,  enter  into  engagements  from  which 
there  would  be  no  retreat  ?  The  declarations  made  by  them 
in  this  conference  (to  which  he  would  add  that  of  Sweden), 
sufficiently  prove  that  the  European  states  refuse  to  do  so. 
If  the  conference  of  Brussels  contributes  to  establish  and 
fortify  the  conviction  that  an  international  agreement  for  the 
free  and  unlimited  coinage  of  silver  is  not  only  rejected  for 
the  moment,  but  is  inadmissible  for  the  future,  it  will  have 
reached  a  very  important  result. 

Mr.  Jones  (the  United  States)  occupied  the  greater  part 
of  this  and  the  following  (ninth)  session  with  an  academical 
discussion  in  favor  of  bimetallism,  which  fills  fifty  large  folio 
pages.  He  was  followed  by  Mr.  Allard  (Belgium)  on  the 
same  side  in  an  argument  of  nine  pages.  — 

Mr.  Bengesco  (Roumania)  commended  to  the  considera- 
tion of  the  conference  the  question  of  an  inter- 
Roumania  fa-  .        .  .       .        ,          ,  ,        . 

vors  an  Inter-      national  gold  com  ot  25  rrancs,  showing  how 

national  Gold        great  an  advantage  it  would  be  to  commerce 
and  how  slightly  it  would  .vary  from  the  Eng- 
lish sovereign   and  the    German  2o-mark  piece.     His  gov- 


102  MONE  Y. 

ernment  had  instructed  him  to  bring  the  subject  to  the  atten- 
tion of  the  conference. 

Mr.  de  Osma   (Spain)  thought  that  the  debates  of  the 
conference  had  been  of  great  value,  but  he 

Mr.  de  Osma  thought  also  that  the  moment  had  not  arrived 

asks  whether  e  .  . 

the  United  *or  reaching  an  agreement.      He  would  there- 
States  wishes  a  fore  ask  the  delegates  of  the  United  States 
Vote  on  the  ,  . 
Question.  whether  they  deemed  it  necessary  to  press  the 

discussion  to  a  point  where  the  doctrinal  dif- 
ferences of  delegates  must  be  expressed  in  a  vote. 

Mr.  Allison  replied  that  it  was  not  the  purpose  of  his  col- 
leagues and  himself  to  press  a  vote  on  the  main  question  at 
this  time.  He  appreciated  the  cordiality  of  expression  of 
all  the  delegates.  It  had  been  proposed  to  postpone  the 
conference  to  a  future  day.  He  hoped  that  the  studies  here 

begun  might  receive  the  thoughtful  attention 

Mr.  Allison          of  the  governments  during  the   interval.     If 
favors  a  Post-  ,    .  ,  ,  . 

ponement.  ^  should  be  found  impracticable  to  form   a 

monetary  union  and  if  the  European  states 
were  to  continue  their  present  policy,  then  the  United 
States  would  doubtless  establish  a  permanent  policy  of 
its  own,  and  in  the  struggle  for  gold,  if  there  be  such  a 
struggle,  with  its  rapidly  growing  population  and  wealth, 
would  find  ample  resources  to  sustain  its  policy,  whatever 
it  might  be. 

The  Examining  Committee,  which  had  previously  reported 
on  the  Rothschild  and  Moritz  Levy  plans,  made  their  final 
report  on  all  the  remaining  plans,  viz.,  those  of  Mr.  Tietgen 

(Denmark),  Mr.  Allard  (Belgium),  Mr.  Houlds- 
other  Plans  worth  (Great  Britain)  and  Mr.  de  Foville 
Mr.  Tietgen's.  (France).  The  Tietgen  plan  proposed  the 

coinage  of  silver  on  government  account 
under  international  agreement  beginning  with  the  market 
ratio  to  gold,  the  coins  to  be  legal  tender  within  the 


THE  BRUSSELS  MONETARY  CONFERENCE.         103 

countries  coining  the  same.  In  case  of  a  decline  of  silver 
by  as  much  as  5  per  cent,  a  commission,  to  be  ap- 
pointed, might  summon  an  international  conference  to  de- 
cide whether  there  should  be  a  recoinage.  All  banks  of 
issue  to  receive  those  coins  on  deposit  from  all  the  coun- 
tries composing  the  union  and  to  have  the  right  to  demand 
from  the  issuing  countries  redemption  of  their  silver  coins 
in  gold. 

Mr.   Houldsworth  explained  that   his  plan  contemplated 

that  the  receipts  for  deposited  silver  bullion 
Mr.  Houlds-  ,        .  . 

worth's.  should  be  legal  tender  in  the  issuing  coun- 

tries, and  that  the  loss,  if  any,  arising  from 
the  depreciation  of  silver  should  fall  on  the  last  holder. 

Mr.  Allard's  plan  provided  for  the  issue  of  international 
notes  based  on  the  deposit  of  silver,  on  which  the  issuing 
governments  should  indicate  the  gold  value  at  the  time  of 

issue,  the  notes  to  be  legal  tender  and  to  be 
Mr.  Allard's. 

redeemed  by  the  governments  in  gold  at  the 

indicated  value  out  of  a  common  fund.  In  other  words,  the 
loss,  if  any,  would  fall  on  all  the  governments  in  proportions 
to  be  hereafter  determined.  If  silver  should  rise  after  the 
issuing  of  the  notes,  the  gain  would  accrue  only  to  the 
government  issuing  the  same. 

Mr.  de  Foville  suggested  that  the  governments  receive 
silver  bullion  on  deposit  and  issue  certificates  therefor 
according  to  weight,  these  certificates  not  to  be  legal  tender 
but  to  be  redeemable  in  the  same  quantity  of  silver  at  the 
mint  or  warehouse  of  any  participating  government,  the 

object  being  to  facilitate  the  transfer  of  silver 
Mr.  de  Foville's.       /, 

without    actually   carrying    it    from   place    to 

place.  Mr.  Raffalovich  suggested  that  the  same  arrange- 
ment might  be  usefully  made  with  gold  bullion.  Mr.  Fors- 
sell  called  attention  to  the  agreement  between  the  three 
national  banks  of  Sweden,  Denmark,  and  Norway,  by  virtue 


104  MONEY. 

of  which  each  bank  can  make  drafts  on  any  other,  at  any 
time,  for  commercial  purposes,  whether  it  has  a  credit  bal- 
ance there  or  not,  on  condition  of  paying  all  such  debts  on 
demand. 

The  Examining  Committee  made  no  recommendations. 

Tenth  Session,  December  17.     The  President  testified  his 

gratitude  for  the  efforts  of  delegates  to  facili- 

Proposed  ad-        tate  the  work  of  the  conference.     A  motion 

May  30, 1893.       would  be  made  by  Baron  de  Renzis  (Italy) 

that  the  conference   suspend  its  labors  and 

take  them  up  at  a  fixed  date  in  the  future. 

Baron  de  Renzis  submitted  a  motion  that  "  the  confer- 
ence suspends  its  labors  and  decides,  should  the  govern- 
ments approve,  to  meet  again  on  the  3oth  of  May,  1893." 
Mr.  Allison  seconded  the  motion. 

Mr.  Currie  (Great  Britain)  thought  that  as  this  was  the 
third  conference  that  had  assembled  for  this  purpose  and 
had  separated  without  accomplishing  or  even  advancing  the 
object  in  view,  it  would  be  wiser  to  declare  plainly  to  our 
bimetallic  friends  that  the  task  they  had  undertaken  was 
impossible.  He  had  been  impressed  by  the  words  of  Mr. 
Tirard,  that  France  would  be  required  to  take  a  large  amount 
of  silver  which  she  could  not  get  rid  of.  It 

Mr.  Currie  op-      was  a  matter  of  indifference  to  the  seller  of 

posed  to  a  Future 

Meeting.  goods  whether  he  was  paid  in  paper,  or  gold, 

or  silver,  provided  the  next  man  would  take 
it  from  him  at  par  and  without  objection.  Tried  by  this 
test  silver  had  broken  down.  Nobody  wants  it  for  him- 
self ;  everybody  tries  to  pass  it  on  to  his  neighbor.  After 
the  repeated  declarations  of  the  delegates  of  France,  Ger- 
many, and  Great  Britain  we  should  only  delude  ourselves  if 
we  did  not  admit  that  the  question  is  closed. 

General  Strachey  (British  India)  said  that  his  govern- 
ment would  hold  itself  absolutely  free  to  act  as  it  might 


GENERAL  CONCLUSIONS.  105 

deem  necessary  on  the  monetary  question  during  the  ad- 
journment of  the  conference. 

All  Countries  Mr.  Allison  replied  that  no  government  was 

Free  to  act  dur-  .    .       .  '  .  , . 

ing  the  Interval,   bound  m  the  least,  as  to  its  monetary  policy, 

during  the  adjournment. 

Count  Alvensleben   (Germany)  said  that  his  instructions 
did  not  permit  him  to  take  part  in  the  resolution  for  the 

adjournment  of    the   conference   to  May  30, 
Adjournment. 
The  Conference       x°93- 
does  not  reas-  The  resolution  was  then  adopted,  and  the 

president  declared  the  conference  adjourned. 
It  did  not  reassemble  at  the  time  agreed  upon,  and  no 
reason  for  its  failure  to  do  so  has  been  made  public. 


CHAPTER  V. 
GENERAL  CONCLUSIONS. 

THE  foregoing  historical  sketch  points  to  a  physical  reason 
for  the  world's  adoption  of  the  gold  standard.    The  impossi- 
bility of  keeping  the  two  metals  in  circulation 

Physical  Reason    simultaneously  at  a  fixed  ratio  having  made 

for  the  Gold 

standard.  tne  choice  of  one  of  them  necessary,  gold  was 

chosen  rather  than  silver  because  it  was  six- 
teen times  easier  to  handle.  As  a  labor-saving  machine  it 
stood  at  the  ratio  of  16  to  i.  As  this  physical  property  can- 
not be  altered,  the  preferences  of  mankind  for  gold  cannot 
be  changed.  On  this  point  the  argument  of  Mr.  Forssell  in 
the  Brussels  Conference  is  perfect.  Even  the  most  elaborate 
system  of  paper  exchanges  leaves  a  residuum  of  payments 
to  be  made  by  the  transfer  of  metal,  and  here  the  question 
of  avoirdupois  becomes  decisive.  A  premium  on  gold  of 
one-quarter  of  one  per  cent  would  upset  any  international 
agreement  that  could  be  made. 


106  MONEY. 

The  question  of  ratio,  regarded  as  a  numerical  quantity, 
is  generally  adjourned  by  the  bimetallists  to  the  Greek 
kalends.  The  present  market  ratio  is  about  32  to  i,  but 
there  has  been  no  proposal  in  this  country 

for  a  leSal  ratio  hiSher  than   20  to   *'      Most 
American   bimetallists  cling  to    16,   although 

they  would  accept  15^2.  But  if  anything  materially 
different  from  the  market  ratio  is  chosen,  there  will  be 
an  immediate  grab  for  gold  and  bimetallism  will  be  dead 
before  it  is  born.  It  is  asked,  what  could  anybody  do 
with  gold  except  to  pay  his  debts  with  it?  He  could  use  it 
to  make  new  bargains  on  a  gold  basis.  It  is  admitted  that 
the  law  can  compel  people  to  take  silver  or  copper  or  any- 
thing else  for  past  debts,  but  it  is  firmly  denied  that  the  law 
can  compel  people  to  make  future  bargains  in  silver  if  they 
prefer  to  make  them  in  gold.  Mr.  Edward  Atkinson  says 
that  under  international  bimetallism,  if  we  can  conceive  such 
a  thing  possible,  bills  of  exchange  would  be  drawn  for  so 
many  ounces  and  grains  of  gold  instead  of  so  many  dollars 
or  pounds  sterling.  He  is  quite  right.  Not  even  interna- 
tional bimetallism  would  cause  merchants  to  draw  bills  of 
exchange  in  terms  of  a  metal  which  they  distrust.  Every- 
body must  cherish  a  suspicion  of  a  kind  of  money  which 
requires  elaborate  international  arrangements,  committees, 
treaties,  statutes,  sheriffs,  and  constables  to  keep  it  going, 

and  when  any  mistake  or  misunderstanding 
Predicament8.  am<>ng  fallible  mortals  is  liable  to  bring  the 

whole  thing  down  by  the  run.  For  all  purposes 
of  international  trade,  bills  of  exchange  drawn  for  ounces 
and  grains  of  gold  would  be  as  satisfactory  as  bills  drawn  for 
dollars  or  pounds  sterling.  A  familiar  example  of  this  kind 
of  trading  is  furnished  by  our  own  government,  which  lately 
made  a  contract  for  the  purchase  of  3,500,000  ounces  of 
gold  coin,  which  contract  is  now  in  the  course  of  fulfillment. 


GENERAL  CONCLUSIONS.  107 

Unless  you  can  conquer  people's  preferences  for  gold,  you 
cannot  bring  any  more  silver  into  use  after  bimetallism  than 
before,  except  for  the  single  purpose  of  paying  past  debts. 
This,  as  everybody  knows,  is  a  limited,  not  an  unlimited,  de- 
mand. Therefore,  all  talk  about  creating  an  unlimited  de- 
mand for  silver  by  artificial  means  is  baseless  and  visionary. 

If  we  find  a  movement  of  c'ivilized  mankind  going  on 
steadily  for  a  hundred  years,  working  out  in  different  coun- 
tries uniform  results  which  commend  themselves  to  succes- 
sive generations,  the  presumptions  are  all  in  favor  of  that 
movement  being  beneficial.  I  am  so  well  convinced  of  the 
benefits  of  the  single  gold  standard  that  if  all  power  were 
placed  in  my  hands  I  would  not  introduce  anything  different 
from  it.  I  should  consider  it  presumptuous 
Evolution  to  attemPt  to  interfere  with  an  obviously 

natural  evolution  in  human  affairs.  I  should 
know,  moreover,  that  such  an  attempt  would  be  futile,  be- 
cause the  first  step  to  be  taken  would  be  to  alter  the  pref- 
erences and  likings  of  individual  men.  Society  consists  of 
aggregations  of  individuals,  who  in  their  private  business 
prefer  one  ounce  of  gold  to  sixteen  ounces  of  silver,  or 
thirty-two  ounces,  as  the  case  may  be.  Unless  I  can  change 
this  preference  and  liking  I  cannot  alter  the  monetary 
standard  of  Christendom.  It  is  this  preference  which 
paralyzes  all  the  international  monetary  conferences.  The 
secret  thought  of  the  delegates  in  the  Brussels  Conference 
was  something  like  this  :  "  What  would  happen  the  day  after 
international  bimetallism  if  people  should  continue  to  prefer 
one  ounce  of  gold  to  sixteen  ounces  of  silver  ? "  Any 
responsible  minister  of  finance  must  recoil  before  that  query. 

If  the  successive  steps  that  we  have  described,  whereby 
the  nations  have  arrived,  one  by  one,  at  the  single  gold 
standard,  had  been  the  result  of  a  hundred  years'  con- 
spiracy against  the  "  debtor  class,"  instead  of  being  a  natural 


108  MONEY. 

evolution  beneficial  to  all  classes,  I  should  still  be  unable  to 
see  any  advantage  in  changing  back.  Whatever  mischief 
appertains  to  this  evolution  has  been  done, 

and  now  belongs  to  the  remote  Past-     Those 
books  are  closed.     To  retrace  the  steps  would 
merely  double  the  wrong,  inflicting  it  upon  a  new  lot. 

Who  are  the  "  debtor  class "  ?  All  men  who  are  not 
bankrupts  are  creditors.  Every  man  who  has  a  crop  in  the 
ground  is  a  creditor.  Every  man  who  has  a 
aass'^el>t0r  week's  wages  due  to  him  is  a  creditor.  Every 
man  who  has  a  deposit  in  a  savings  bank  is  a 
creditor.  Every  man  who  has  got  ahead  in  the  world  is  a 
creditor.  He  may  owe  something,  but  his  ability  to  obtain 
credit  is  presumptive  evidence  that  he  has  more  coming  to 
him  than  he  owes,  and  this  fact  puts  him  in  the  creditor 
class.  I  take  it  that  we  are  not  legislating  specially  for 
bankrupts.  Certainly  it  would  not  be  wise  to  change  our 
standard  of  value  for  their  accommodation.  Such  a  change 
would  produce  a  great  many  new  bankrupts  and  would  not 
save  any  old  ones. 

It  is  said  that  the  single  gold  standard  has  produced  a 
disastrous  fall  in  the  prices  of  commodities.  Prices  of  com- 
modities must  be  either  advancing  or  declining  or  stationary. 
The  world  has  no  experience  of  stationary 
PrkfsedFaUOf  Prices  and  probably  never  will  have.  There- 
fore, those  who  cry  out  against  declining 
prices  must  be  in  favor  of  advancing  ones,  but  how  far  they 
would  push  the  advance  they  do  not  say.  Is  there  any  limit 
to  the  desirable  advance?  If  so,  what  is  to  be  done  when 
it  is  reached?  As  prices  cannot  be  stationary  there  must 
then  be  a  decline.  So  we  do  not  avoid  misery  by  gratifying 
the  bimetallists.  We  only  postpone  it. 

If  it  could  be  shown   that  the  single  gold  standard  had 
caused  the  decline  in  prices  which  has   taken   place  since 


GENERAL  CONCLUSIONS.  109 

1873,  I  should  consider  that  fact  its  best  title  to  be  con- 
sidered a  benefit;  because  it  is  demonstrable  that  wages  have 
advanced  during  the  same  period,  with  the  re- 

sult  °f  &ivin£  to  the  &reat  mass  of  the  Pe°Ple 
more    comforts    for    their    labor    than  they 

could  command  before.  This  is  clearly  shown  by  the  Re- 
port on  Wholesale  Prices,  Wages  and  Transportation  made 
by  the  Senate  Committee  on  Finance,  March  3,  1893,  —  a 
work  which  has  never  been  surpassed  in  this  or  any  other 
country  in  fullness,  thoroughness  and  impartiality. 

After  examining  this  report,  Professor  Taussig  says  :  "All 
in  all,  the  figures  show  that  the  purchasing  power  of  money 
wages  has  been  rising  steadily  for  at  least  twenty  years,  and 
that  the  decline  in  prices  since  1873  and  especially  since 
1882  has  been  a  source  of  prosperity  and  not  of  depression 
to  the  community  at  large."  1 

In  the  daily  business  of  life  nobody  imagines  that  he  is 
promoting  the  general  interests  by  charging  higher  prices  for 
his  goods,  or  by  contriving  means  for  a  general  rise  of  prices. 
All  who  advertise  in  the  newspapers  proclaim  low  prices. 
They  seek  to  attract  customers  in  that  way.  Is  it  possible 
that  these  advertisers  misconceive  the  public  interests  ?  Is 
it  possible  that  the  public  misconceive  their 
AcceSwe^'7  own  interests  ?  Why  then  do  we  hear  so  much 
complaint  about  low  prices?  Because  the 
producers  are  the  only  ones  who  make  any  complaint.  The 
consumer,  when  he  goes  into  the  market,  accepts  low  prices 
with  quiet  satisfaction,  but  he  too  can  make  a  clamor  when 
prices  are  rising.  Add  fifty  cents  per  ton  to  the  price  of 
coal  and  you  can  have  plenty  of  noise  on  the  other  side  of 
the  house. 

1  Results  of  recent  Investigations  on  Prices  in  the  U.  S.  By  F.  W. 
Taussig.  A  Paper  read  before  the  International  Statistical  Institute  at 
Chicago,  1893, 


110  MONEY. 

It  cannot  be  shown,  however,  that  such  decline  in  prices 
as  has  taken  place  in  recent  years  has  been  due  to  an  ap- 
preciation of  gold.  Mr.  David  A.  Wells,  in  his  work  en- 
titled "  Recent  Economic  Changes,"  accounts 
SvestSation  satisfactorily  for  the  decline  in  price  of  all  the 
staple  articles  of  commerce  which  have  really 
declined  since  1873,  by  new  inventions  and  facilities  for 
producing  or  transporting  the  same.  Mr.  Wells  takes  up 
each  article  separately.  He  shows  that  some  articles  have 
risen  in  price  during  the  period  named  and  some  have  re- 
mained nearly  stationary,  while  among  those  that  have  de- 
clined the  widest  variations  exist  as  to  the  percentage  of 
decline,  all  the  changes  being  traceable  to  known  conditions 
of  supply  and  demand. 

It  is  said  that  the  burden  of  mortgages  and  of  national 
and  state  debts  has  been  increased  by  the  appreciation  of 
gold.  Here  we  have  again  the  unproved  assumption  that 
gold  has  appreciated.  This  is  assumed  be- 
WatioSlDeMs.  cause  a  larger  amount  of  the  things  service- 
able to  man  can  be  obtained  with  a  given 
quantity  of  it  than  could  be  obtained  twenty  years  ago.  On 
the  other  hand  it  requires  a  larger  quantity  of  gold  to  buy  a 
given  amount  of  labor  than  it  did  twenty  years  ago.  As  the 
dollar  will  buy  less  labor  but  more  goods  the  difference 
must  lie  in  the  greater  efficiency  of  labor.  This  has  all  the 
force  of  a  proposition  in  mathematics. 

As  to  mortgage  debts,  I  have  learned  by  inquiry  of  the 
principal  lending  companies  in  New  York  that  mortgages 
are  generally  made  for  the  term  of  five  years,  and  that  about 
25  per  cent  of  them  are  paid  at  or  before  maturity.  Conse- 
quently, any  wrong  which  mortgageors  are  now  suffering,  in 
consequence  of  the  gold  standard,  must  have  accrued  since 
1890.  To  redress  their  supposed  wrongs  we  are  asked  to 
turn  the  whole  business  of  the  country  upside  down  and 


GENERAL  CONCLUSIONS.  Ill 

change  the  rating  of  all  other  contracts  50  per  cent.  But 
the  average  duration  of  mortgages  is  considerably  less  than 
five  years.  The  Topeka  Capital  newspaper  made  a  special 
investigation  of  the  records  of  a  number  of  agricultural  coun- 
ties in  Kansas  a  few  years  since,  and  found  that  more  mort- 
gages were  paid  off  than  were  put  on  within  the  period 
covered  by  the  investigation.  I  am  aware  that  many  mort- 
gages are  allowed  to  run  for  indefinite  periods  after  they 
fall  due,  but  these  are  call-loans  on  real  estate  security.  I 
am  not  aware  that  borrowers  on  call  are  complaining  of  the 
gold  standard.  At  all  events,  if  they  are  oppressed  by 
reason  of  that  standard  they  can  relieve  themselves  at  any 
time  by  paying  up.  If  they  do  not  pay  and  are  solvent,  it 
must  be  because  they  find  it  to  their  advantage  to  endure 
these  so-called  oppressions  a  while  longer. 

Suppose  it  were  true  that  national  and  State  debts  were 
enhanced  in  the  manner  alleged,  would  that  be  a  reason  for 
changing  the  standard  of  value  for  the  countless  daily  trans- 
actions of  business  ?  The  bank  clearings  of 
the  United  States  average  one  thousand  mil- 
lion dollars  weekly,  a  sum  considerably  larger 
than  the  interest-bearing  debt  of  the  Nation.  Add  to  this 
the  payments  over  the  bank  counters,  that  do  not  figure  in 
the  clearings,  and  the  retail  transactions  of  the  people,  and 
then  multiply  the  whole  by  the  fifty-two  weeks  of  the  year, 
and  it  may  be  seen  how  large  a  cannon  it  is  proposed  to 
load  to  kill  a  mosquito,  and  what  a  tremendous  recoil  it 
must  have. 

General  Francis  A.  Walker  says,  in  a  recent  tract,  that 
"  no  bimetallist  nowadays  makes  the  concurrent  circulation 
of  the  two  metals  in  the  same  country  a  necessity  of  that 
system.  If  it  results  only  in  establishing  an  alternating  cir- 
culation, the  chief  results  of  bimetallism  will  still  be 
achieved."  This,  as  Professor  Farnam  has  pointed  out, 


112  MONEY. 

makes  no  provision  for  a  continued  decline  in  silver,  which 
would  land  all  the  concurring  nations  on  the  single  silver 
standard.1  Now  the  single  standard  of  one 

.  metal  is  not  to  be    preferred   to   the    single 
standard   of  the  other,  on  any  theory  of  bi- 
metallism.    Those  who  favor  an  alternating  standard  are 
bound  to  show  that  it  actually  would  alternate. 

We  hear  much  about  the  "  scramble  for  gold."  What  is 
meant  by  this  phrase  ?  Generally  a  thing  is  not  scrambled 
for  unless  it  is  desirable.  The  simple  truth  is  that  gold  is 
the  only  money  of  civilized  nations.  We  are 
a11  aiming  as  individuals  to  get  as  much  money 
as  we  can.  As  nations  are  composed  of  indi- 
viduals it  is  no  mystery  that  nations  appear  to  be  doing  the 
same.  Calling  it  a  scramble  serves  only  to  create  prejudice 
among  the  unthinking,  because  a  scramble  usually  takes 
place  in  the  dirt  and  is  attended  by  the  display  of  evil 
passions. 

It  is  said  by  some  that  the  losses  incurred  by  the  want  of 
a  par  of  exchange  between  silver-using  and  gold-using  coun- 
tries are  very  serious,  and  that  this  evil  can  be  cured  by  bi- 
metallism. Whatever  this  trouble  may  have  been  in  the 
past  it  cannot  be  considered  serious  now,  since  the  only 
silver-using  countries  are  China,  the  Straits  Settlements, 
Mexico,  and  a  few  of  the  lesser  republics  of  Central  and 
South  America.  In  China,  however,  silver  passes  by  weight, 
not  by  tale.  Therefore  the  par-of-exchange  trouble  does 
not  exist  there. 

It  is  said,  finally,  that  there  is  not  gold  enough  in  the 
world  to  do  the  business  of  the  world.  This  statement 
would  be  of  no  consequence,  even  if  it  were  true,  since  the 
real  question  is  whether  there  is  enough  for  the  gold-using 
portion  of  the  world,  which  question  may  be  answered  in 

1  Yale  Review,  August,  1894. 


GENERAL  CONCLUSIONS.  113 

the  affirmative,  as  this  portion  of  the  world  is  giving  ocular 

proof  of  the  fact  every  day.     As  regards  the  future,  there  is 

every  prospect  that  the  increased  supply  will 

Plenty  of  Gold      keep  pace  with  any  increase  of  demand,  the 
and  More  com-  .          .      . 

ing.  production  during    recent    years    having    ad- 

vanced by  leaps  and  bounds.  According  to 
the  reports  of  the  United  States  mint  the  world's  output  of 
gold  during  five  years  has  been  as  follows  : 

1890  .  .  .  $118,849,000. 

1891  .  .  .  $130,650,000. 

1892  .  .  .  $146,297,000. 

1893  .  .  .  $157,228,000. 

1894  .  .  .  $181,510,100. 


PART    II. 


REPRESENTATIVE   MONEY. 


BOOK    I. 
FIAT  MONEY. 

CHAPTER    I. 
GENERAL    CHARACTERISTICS. 

REPRESENTATIVE  money  is   anything  promising   to   pay 

money  which  circulates  as  a  common  medium  of  exchange. 

It  is  usually  made  of  paper,  but  sometimes  of  a  cheap  metal. 

Usually  the  promise  to  pay  money  is  printed 

Always  a  on  jt   but  sometimes  it  is  merely  expressed  in 

Promise  to  pay 

Real  Money.         the  laws.     Representative  money  may  be  put 

in  circulation  by  governments,  by  incorporated 
companies  or  by  individuals.  It  may  be  redeemable  or 
irredeemable.  It  may  promise  to  pay  money  on  demand  or 
at  a  future  time,  and  in  the  latter  case  it  may  or  may  not 
draw  interest.  It  may  or  may  not  be  legal  tender  between 
individuals. 

When  it  is  issued  by  a  government,  and  is  legal  tender,  it 
is  called  fiat  money.  This  phrase  is  colloquial  in  the  United 
States. 

Money,  as  we  have  seen,  is  an  instrument  of  exchange. 
There  may  be  too  many  or  too  few  of  these 

Equilibrium  of      instruments  at  any  time  or  place,  as  there  may 

Money  and 

Goods.  be  too  many  or  too  few  carts  or  wheelbarrows. 

When  the  money  is  a  commodity  of  general 
use  in  the  world,  like  the  precious  metals,  then  if  any 
country  has  more  than  it  needs  there  will  be  an  exportation  of 


118  REPRESENTATIVE   MONEY. 

the  surplus,  if  less  there  will  be  an  importation.  This  move- 
ment is  automatic.  It  is  as  certain  to  take  place  as  an  ex- 
portation of  grain  when  there  is  a  surplus  or  an  importation 
when  there  is  a  shortage.  Nobody,  not  even  the  Govern- 
ment, can  prevent  it. 

Now  let  us  see  what  happens  when  the  Government  forces- 
its  own  notes  into  circulation.  Suppose  that  one  million 
dollars  was  just  enough  before,  and  that  the  Government 
adds  one  hundred  thousand.  If  the  conditions  of  trade  and 
industry  remain  the  same,  there  will  now  be  one  hundred 
thousand  too  many  instruments  of  exchange 


foreigners  will  not  take  the  paper,  the  exported 
instruments  will  be  the  metallic  ones.  These  are  a  part  of 
the  capital  of  the  exporting  country  and  they  will  bring  in 
other  capital  in  exchange,  or  pay  preexisting  debts  for  which 
other  capital  would  need  to  be  exported.  Suppose  that  the 
Government  continues  to  issue  its  paper  notes  until  one  mil- 
lion are  out.  All  the  specie  will  have  passed  out  of  circula- 
tion. It  usually  happens  in  such  cases  that  a  portion  of  it 
is  hoarded  or  kept  on  hand  for  speculation.  Now  although 
there  are  no  more  instruments  for  exchange  than  there  were 

in  the  beginning,  there  will  be  some  deprecia- 
s^ecie  &  tion,  because  those  in  use  are  lacking  in  some 

of  the  elements  of  good  money.  They  are  not 
available  for  remittances  abroad.  Their  value  is  not  regu- 
lated by  supply  and  demand.  There  is  no  cost  of  produc- 
tion to  paper  money.  There  is  no  use  for  it  in  the  arts. 
Therefore  it  cannot  command  entire  confidence.  But  the 
depreciation,  up  to  this  point,  will  be  slight. 

Suppose  that  the  Government  issues  one  hundred  thousand 
dollars  more.  The  surplus  cannot  be  exported  because 
foreigners  will  not  take  it.  The  goods  and  property  in  cir- 
culation were  formerly  measured  by  one  million  dollars. 


GENERAL  CHARACTERISTICS.  119 

They  are  now  measured  by  eleven  hundred  thousand.  Prices 
will  rise.  This  means  that  the  currency  is  now  depreciated. 
It  will  probably  be  depreciated  rather  more 

than  the  quantity  would  indicate,  because 
people  will  expect  further  issues  and  will 
anticipate  them  by  charging  more  for  their  goods.  Those 
who  are  receiving  fixed  incomes,  whether  wages,  salaries  or 
interest,  will  be  cheated,  because  the  things  they  buy  will 
cost  more,  while  their  receipts  will  be  no  greater.  Uncer- 
tainty will  be  introduced  into  business.  The  investment  of 
capital  will,  for  this  reason,  be  retarded,  while  speculation 
will  be  promoted. 

Barring  public  alarm  and  apprehension,  the  value  of  the 
currency  will  be  governed  by  the  law  of  supply  and  demand, 
*>.,  the  supply  of,  and  the  demand  for,  instruments  of  ex- 
change.    How  are  we  to  know  what  the  value 
Its  Value  regu-  .  . 

lated  t>y  the  Law  1S  at  anv  time?     By  the  rate  of  exchange  with 

of  Supply  and  countries  which  are  on  the  specie  basis.  For 
•*•-*  example,  Italy  is  on  a  paper  basis  ;  France  is 
on  the  gold  basis.  The  monetary  unit  of  both  is  the  franc. 
The  two  countries  have  a  common  boundary.  One  hundred 
paper  francs  of  Italy  will  buy  goods  on  that  side  of  the  line 
that  will  bring  only  94}^  francs  on  the  French  side,  but 
these  are  gold  francs.  This  rule  holds  good  as  to  all  parts 
of  France  and  Italy.  If  we  go  away  from  the  boundary  we 
must  add  charges  for  freight  and  other  expenses,  but  it 
comes  to  the  same  thing.  At  Rome,  Florence,  Naples,  etc., 
exchange  on  Paris  is  at  5*^  per  cent  premium.  Italian 
paper  is  depreciated  in  that  ratio. 

This  seems  a  very  simple  proposition,  yet  in  the  year  1810 
a  Parliamentary  investigation  was  needed  to  prove  it.  Great 
Britain  was  then  on  a  paper  basis  and  gold  was  at  a  premium 
of  15  per  cent.  A  majority  of  the  merchants  and  statesmen 
of  the  day  believed  that  gold  had  increased  in  value  instead 


120  REPRESENTATIVE  MONEY. 

of  bank  notes  depreciating.    The  Governor  and  ex-Governor 

of  the  Bank  of  England  were  of  this  opinion.     Parliament 

appointed  a  committee  to  investigate  the  ques- 

Tne"  Bullion  ^  They  made  a  very  thorough  examina- 
Report "  of  18 10. 

tion  and   submitted  their  conclusions   in  the 

celebrated  "  Bullion  Report."  They  proved,  with  as  much 
certainty  as  any  proposition  in  Euclid,  that  gold  had  not  ad- 
vanced, but  that  the  paper  currency  had  depreciated  and 
that  the  depreciation  was  due  to  its  redundancy. 


CHAPTER    II. 
COLONIAL  PAPER  MONEY.1 

THE  first  government  paper  money  in  this  country  was 
issued  by  the  Colony  of  Massachusetts  in  1690  in  order  to 

pay  soldiers  who  had  returned  without  their 
First  Massachu-  expected  booty  from  an  expedition  against 
Money^  Canada.  The  public  treasury  was  empty,  and 

the  soldiers  could  not  or  would  not  wait  for 
the  collection  of  taxes  to  meet  their  demands.  The  General 
Court  accordingly  issued  ,£40,000  in  due  bills  which  were 
made  receivable  for  taxes  and  exchangeable  for  any  commod- 
ities in  the  treasury.  These  were  issued  to  the  soldiers  in 
anticipation  of  the  tax  collections  ;  they  were  not  payable  at 
any  particular  time  ;  they  did  not  bear  interest,  and  they 
were  not  legal  tender.  They  did  not  pass  for  more  than  1 2 
or  14  shillings  in  the  pound.  The  soldiers  lost  two-fifths  of 
their  dues.  In  1692  the  bills  were  made  legal  tender  in  all 

1  In  this  treatise  the  word  "  bills  "  will  be  applied  exclusively  to  bills 
of  credit,  the  word  "notes"  to  the  issues  of  banks.  This  seems  neces- 
sary for  purposes  of  distinction,  although  in  common  parlance  we  speak 
of  bank  bills  and  bank  notes  indiscriminately. 


COLONIAL  PAPER  MONEY.  121 

payments  and  receivable  for  taxes  at  5  per  cent  better  than 
silver  and  redeemable  in  silver  at  the  end  of  twelve  months. 
These  provisions  made  them  equal  to  silver. 

It  was  a  fatal  experiment.  Its  apparent  success  as  a 
means  of  postponing  taxes  led  to  disorders  far  worse  than 
the  commodity  currency  of  the  earlier  period.  It  spread  to 
the  other  colonies  like  an  epidemic.  No  kings,  however 
tyrannical,  ever  debased  the  money  in  circulation  so  reck- 
lessly, persistently,  outrageously,  as  the  colonial  assemblies. 
It  would  seem  that  no  lessons  of  experience 

fhe^  idemic  °f  were  °^  any  va^ue  to  prevent  repetitions  of 
the  same  offense.  In  so  far  as  they  were 
saved  from  the  worst  consequences  of  their  folly  they 
were  saved  by  the  mother  country,  with  which  they  were 
at  bitter  strife  on  the  subject  of  legal  tender  acts  and 
depreciated  paper,  for  three-quarters  of  a  century.  Loyal 
and  obedient  on  most  matters,  and  ready  to  take  up  arms  in 
England's  quarrels,  they  were  rebellious  and  intolerant  of 
restraint  on  this  subject. 

Nearly  all  the  colonial  Governors  were  in  hot  water  with 
their  legislatures  concerning  bills  of  credit.  Acting  under 
instructions  of  the  Lords  of  Trade  they  re- 
Peatedly  vetoed  the  Paper-money  bills.  Then 
the  legislatures  refused  to  provide  for  the  sup- 
port of  the  local  governments.  They  stopped  the  salaries  of 
the  Governors  and  allowed  the  public  buildings  and  barracks 
to  go  to  decay.  This  source  of  irritation  against  the  mother 
country  has  been  grossly  neglected  by  historians  in  general, 
but  not  by  Mr.  Felt,  the  historian  of  Massachusetts  cur- 
rency, who  assigns  it  its  proper  place  among  the  causes 
which  led  to  the  separation. 

In  South  Carolina  in  1719  the  people  deposed  the  Pro- 
prietors' Governor  because  he  would  not  assent  to  bills  of 
credit  and  the  King  connived  at  this  act  of  insubordination 


122  REPRESENTATIVE  MONEY. 

in  order  to  get  the  province  under  his  own  authority.     At 
a  later  period  the  Legislature  of  this  colony,  being  at  logger- 
heads with  the  royal  Governor  on  the  same 

And  with  the       subject,   adjourned  for  three   years,    making 
Colonial  Gover-  J        .  .         . 

nors.  no  provision  for  the  support  of  the  govern- 

ment meanwhile.  The  same  thing  happened 
in  New  Hampshire.  Her  representatives  for  five  years  pre- 
ceding the  year  1736  refused  all  supplies.  New  Jersey  did 
the  same  for  four  years,  for  the  same  reason.  The  Gover- 
nors complained  to  the  home  authorities ;  and  the  latter  in- 
sisted that  the  colonies  should  provide  a  permanent  instead 
of  an  annual  support  for  the  local  governments,  which  they 
flatly  refused  to  do.  In  almost  every  case  the  Governors 
were  at  last  worn  out  and  compelled  to  yield.  As  Mr.  Felt 
says,  "The  Briareus  of  paper  money  was  too  strong  for 
them." 

The  Colonies  had  agents  in  London  to  look  after  their 
interests  and  to  give  them  early  warning  of  danger.  Their 
activity  was  largely  engaged  in  opposing  measures  to  restrict 
bills  of  credit.  The  mother  country  would  have  taken  earlier 
and  more  decisive  steps  against  these  swindling  acts  but  for 
the  frequent  wars  with  France  and  Spain.  Whenever  a 
war  broke  out,  and  the  colonies  were  called  upon  to  take  up 
arms,  bills  of  credit  were  voted,  and  then  the  home  govern- 
ment could  only  acquiesce,  but  it  always  insisted  that  the 
bills  should  be  sunk  by  taxes  within  five  years. 

Petitions  against  bills  of  credit  from  the  mercantile  classes 
in  the  colonies,  and  from  London  merchants,  at  last  pre- 
vailed on  Parliament  to  take  action.  In  1751  a  bill  was 
brought  forward  to  prohibit  paper  money  in 
the  four  New  England  provinces  where  the 
trouble  was  greatest,  but  before  it  was  passed 
the  agents  of  the  colonies  managed  to  get  exceptions  in  case 
of  great  emergencies  and  of  war.  Even  in  these  cases  the 


COLONIAL  PAPER  MONEY.  123 

bills  were  not  to  be  legal  tender  between  individuals.  Re- 
monstrances against  the  act  by  the  colonial  assemblies  were 
numerous,  and  some  of  them  took  the  ground  that  it  was  an 
infringement  of  the  liberties  of  all  Englishmen.  The  agent 
of  Massachusetts,  although  this  colony  had  just  returned  to 
a  specie  basis  by  repudiating  nine-tenths  of  her  outstanding 
paper,  was  very  urgent  that  the  liberties  of  the  people  should 
not  be  infringed  upon  by  an  act  to  prevent  them  from  doing 
the  same  thing  over  again.  In  1763,  Parliament  passed 
another  act  much  more  stringent,  and  applicable  to  all  the 
colonies. 

Contemporary  historians  tell  us  that  these  sins  were  not 

committed  through  ignorance.     It  was  not  through  ignorance 

that  Massachusetts,  for  example,  watered  her  currency  till 

one  pound  sterling  would  buy  eleven  pounds  of  paper  money 

and  then  repudiated  all  but  one-tenth  of  it. 

"  Populists "  of     This  process  was  going  on  gradually  for  fifty 

the  Colonial 

Period.  years.     1  he  better  classes  were  outvoted  ;  they 

were  benumbed  and  powerless.  They  were  a 
prey  to  an  active  speculating  class  and  a  shiftless  debtor 
class  who  controlled  legislation  from  year  to  year  in  the  way 
that  we  have  had  examples  of  in  more  recent  times. 

A  pamphlet  of  1743  l  speaks  of  the  bills  of  credit  in  New 
England  issued  on  loan  "  to  themselves,  Members  of  the 
Legislature,  and  to  other  Borrowers,  their  Friends,  at  easy 
and  fallacious  Lays,  to  be  repaid  at  very  long  Periods ;  and 
by  their  provincial  Laws  made  a  Tender  in  all  Contracts, 
Trade  and  Business,  whereby  Currencies,  various  and  illegal, 
have  been  introduced  which  from  their  continued  and  de- 
preciated nature  in  the  Course  of  many  Years  have  much 
oppressed  Widows  and  Orphans  and  all  other  Creditors." 
This  writer  gives  special  attention  to  the  colony  of  Rhode 

1  Quoted  in  "A  Letter  from  a  Gentleman  in  Boston  to  his  Friend  in 
Connecticut."  In  the  Ford  Library,  Brooklyn. 


124  REPRESENTATIVE  MONEY. 

Island,  which  had  "  defrauded  more  in  a  few  years  than  any 
the  most  wicked  administrations  in  the  several  nations  of 
Europe  have  done  in  several  centuries.  A 
contract  made  3o  years  ago  for  £100  sterling 
in  value  (that  is,  silver  at  8s.  per  oz.)  is  at 
present  reduced  to  a  nominal  32^.  per  oz.  .  .  .  This  ex- 
pedient of  depreciating  their  Government  bills,  by  their  laws 
made  a  Tender  and  Currency,  is  promoted  by  the  fraudulent 
Debtors  and  desperate  part  of  the  Colony  in  order  to  pay 
former  contracts  with  a  much  less  value  than  was  contracted 
for  and  more  especially  to  defraud  British  merchants  in  their 
outstanding  debts.  The  paper  money  promoters  are  the 
desperate  and  fraudulent,  these  being  vastly  the  Majority 
in  the  colony,  carrying  all  elections ;  both  legislative  and 
executive  parts  of  their  government  are  annually  elective. 
Thus  Government  is  perverted  and  become  worse  than  a 
State  of  Nature.  If  by  chance  any  of  the  elected  opposes 
the  emission  of  any  of  those  fraudulent  bills  he  is  drop'd 
next  election  as  a  professed  enemy  to  the  Interest  of  the 
Colony.  .  .  .  This  poor  small  colony,  from  a  late  exact 
Perlustration,  contains  not  exceeding  20,000  men,  women 
and  children,  whites,  Indians  and  negroes,  have  extant  about 
,£400,000  paper  money.  And  of  this  about  three-quarters  is 
in  the  Possession  of  people  of  neighboring  Colonies."  The 
writer  of  the  "  Letter  "  was  not  opposed  to  bills  of  credit. 
His  motive  in  writing  was  to  show  that  an  act  of  Parliament 
prohibiting  the  emission  of  bills  in  New  England  generally, 
because  of  the  excesses  and  frauds  of  Rhode  Island  and 
New  Hampshire,  would  be  an  act  of  injustice  to  Massachu- 
setts and  Connecticut. 

"  All  our  paper-money  making  legislatures,"  says  the  con- 
temporary writer  Dr.  Douglass,  "  have  been  legislatures  of 
debtors,  the  representatives  of  people,  who  for  incogitancy, 
idleness  and  profuseness  have  been  under  the  necessity  of 


COLONIAL  PAPER  MONEY.  125 

mortgaging  their  lands."  To  the  same  purport  writes 
Hutchinson. 

Thomas  Paine  has  drawn  the  portrait  of  the  group. 
Writing  in  1786,  he  tells  us  how  the  speculators  and  debtors 
were  then  working  for  bills  of  credit.  He  says  : 

"  There  are  a  set  of  men  who  go  about  making  purchases 
upon  credit,  and  buying  estates  that  they  have  not  where- 
withal to  pay  for  ;  and  having  done  this  their 

Thomw  PaiSe  next  Step  is  tO  fil1  the  newsPaPers  with  Para~ 
graphs  of  the  scarcity  of  money  and  the  neces- 
sity of  a  paper  emission,  then  to  have  legal  tender  under  the 
pretence  of  supporting  its  credit,  and  when  out,  to  depreciate 
it  as  fast  as  they  can,  get  a  deal  of  it  for  a  little  price  and 
cheat  their  creditors  ;  and  this  is  the  concise  history  of 
paper-money  schemes."  J 

In  this  essay  Paine  says  that  any  member  of  the  legisla- 
ture who  proposes  a  tender  law  ought  to  be  put  to  death. 

"  Usurers  "  were  then,  as  now,  unpopular.  Any  means  of 
circumventing  them  was  hailed  with  satisfaction,  and  no 
method  was  more  obvious  than  that  of  furnishing  loans  at 
the  public  treasury  to  those  who  could  not 
Treas  *r Om  °  borrow  elsewhere,  or  who  wanted  to  borrow  at 
less  than  the  market  rates,  or  who  wanted  to 
borrow  from  the  colony  at  low  rates  in  order  to  lend  again 
at  high  rates.  Anybody  who  had  a  "  pull  "  could  do  this. 
In  Rhode  Island  it  was  the  custom  of  the  favored  ones  to 
sell  their  privileges,  as  "  rights  "  are  sold  on  the  Stock  Ex- 
change. The  first  issue  of  bills  of  credit  for  a  loan  was  in 
South  Carolina  in  1712.  From  this  example,  says  Bancroft, 
"  the  passion  for  borrowing  spread  like  flame  on  a  dry 
prairie." 

There  were  three  main  causes  or  excuses  for  the  issue  of 
bills  of  credit  :  (i)  war  expenses  ;  (2)  loans  to  individuals  ; 

1  Writings,  vol.  ii,  page  178. 


126  REPRESENTATIVE  MONEY. 

(3)   ordinary  expenses  of  government.     There  were  other 

pretexts.     One  of  the  most  common  was  the  replacement 

of  old  and   worn  bills,   which    always    left    a 

Other  Pretexts      margin  over  for  general  expenses,  and  some- 
for  Bills  of 

Credit.  times  a  very  large  margin.     Of  ^46,000  Con- 

necticut bills  authorized  for  this  purpose  be- 
tween 1713  and  1732,  ^29,885  went  to  the  payment  of 
colony  debts.  In  this  case  the  General  Court  did  not  wait 
to  see  what  margin  would  be  left  after  replacing  the  old  and 
worn  bills,  but  dipped  into  the  reservoir  to  meet  current 
charges,  because  it  was  handy.  Maryland  once  issued  bills 
of  credit  as  a  sheer  gift  to  a  portion  of  the  inhabitants  — 
"  the  taxables." 

Colonial  bills  of  credit  were  of  several  different  kinds, 
viz.,   (i)  interest-bearing,  not  legal  tender  (these  were  unob- 
jectionable) ;  (2)  the  same,  legal  tender  for 
the  principal  and  sometimes  for  the  interest 
also  ;     (3)   non-interest-bearing,   legal  tender 
for  all  purposes  ;  (4)  the  same,  legal  tender  for  future  but 
not  for  past  debts  ;  (5)  the  same,  not  legal  tender  between 
private  persons  but  receivable  for  all  public  dues. 

Interest-bearing  bills  were  soon  abandoned  and  the  ten- 
dency in  all  the  colonies  was  to  make  the  bills  legal  tender 
for  all  purposes.  But  for  the  restraints  imposed  by  the 
mother  country  probably  all  would  have  been 
Mostly  Legal  legal  tender  for  all  purposes,  and  the  issues 
would  have  been  much  larger  in  amount  than 
they  were.  Dr.  Bronson  says  that  Connecticut  was  more 
prudent  than  her  neighbors  in  the  matter  of  legal  tender 
acts  because  she  had  a  precious  charter  which  she  did  not 
wish  to  put  to  risk  by  offending  the  home  government.  No 
such  consideration  restrained  Rhode  Island. 

Reports  were  made  from  time  to  time  to  the  home  govern- 
ment in  response  to  inquiries  as  to  the  amount  of  bills  out- 


COLONIAL  PAPER  MONEY.  127 

standing.     Often  these  were  ingeniously  prepared  to  convey 
false  impressions.     The  New  York  Assembly  had  the  assur- 
ance to  repeal  all  safeguards  against  the  re- 
False  Reports,       issuing  of  bills  of  credit  that  had  been  re- 
deemed, and  when  the  Governor  disallowed  the 
act  the  Treasurer  reissued  the  bills  nevertheless.    The  Gover- 
nor so  reported  to  the  Lords  of  Trade,  and  added  that  the 
Treasurer  refused  to  let  him  know  the  amount  of  bills  out- 
standing when  requested  to  do  so. 

In  addition  to  legal  tender  there  was  a  great  variety  of 
laws  to  compel  people  to  sell  their  property  at  the  same 
price  for  bills  of  credit  as  for  silver.  The  "  debtor  class  " 
were  not  satisfied  with  forcing  depreciated 
Forcing  Laws.  paper  upon  creditors  for  past  obligations. 
They  insisted  that  they  ought  to  be  able  to 
buy  as  much  property  with  the  paper  as  with  specie.  Those 
who  had  been  forced  to  take  the  paper  for  past  debts 
naturally  joined  in  this  demand.  The  legislatures  agreed 
with  them.  Hence  we  find  in  nearly  all  the  colonies  severe 
penalties  on  those  who  charged  more  for  their  goods,  lands 
or  services  in  bills  of  credit  than  in  hard  money.  In  some 
cases  the  penalty  was  a  fine,  in  others  imprisonment,  in 
others  confiscation  of  the  property  offered.  There  is  no 
recorded  instance  in  colonial  history  where  the  penalties 
had  any  effect  to  reduce  the  prices  of  property,  or  to  equalize 
paper  prices  and  silver  prices,  although  there  are  many 
cases  where  individuals  were  outrageously  robbed. 

The   usual  course  of  events  where  bills  of  credit  were 
issued  (but  with  some  variations)  was  as  follows  :  (i)  Emis- 
sion ;   (2)  disappearance  of  specie;   (3)  coun- 
Bmfof  St.'     Citing ;  (4)  wearing  out  of  bills  ;  (5)  calling 
in  and  replacing  worn  and  counterfeited  issues 
with  new  ones  ;   (6)  extending  the  time  for  old  ones  to  run, 
especially  those  that  had  been  placed  on  loan  ;   (7)  depreci- 


128  REPRESENTATIVE  MONEY. 

ation  ;  (8)  repudiation  of  early  issues  in  part  and  the  emis- 
sion of  others  called  "new  tenor." 

Dr.   Douglass  says  that  Massachusetts  had  at  one  time 
"  old  tenor,  middle  tenor,  new  tenor  first,  new 
"Tenors."  tenor    second."      Rhode    Island    had    an    in- 

definite number  of  tenors  like  a  succession  of 
manure  heaps  of  different  degrees  of  rottenness. 

In  all  cases  except  where  the  bills  were  placed  on  loan, 
taxes  were  laid  to  sink  them  at  some  time,  near  or  remote. 
This  was  necessary  to  give  them  any  credit  at  all,  but  it  was 
very  easy  to  extend  the  time.  Consequently 
PostPonements  were  frequent.  When  Parlia- 
ment took  hold  of  the  subject  it  prohibited 
all  extensions  and  deprived  the  bills  of  their  legal  tender 
character  after  the  allotted  time  had  expired.  This  was  a 
great  grievance.  The  New  York  legislature  resolved  that 
bills  not  tenderable  were  useless. 

Counterfeiting  and  wearing  out  were  invariable  and  very 
trying  evils.  The  former  was  punishable  with  death  in  all 
the  colonies  except  one  or  two,  —  Bronson  says  in  all  except 
Connecticut,  —  but  although  there  were  many  convictions 
the  extreme  penalty  was  hardly  ever  enforced.  The  expul- 
sion of  specie  which  followed  very  soon  after  the  first  emis- 
sion of  bills  of  credit  left  the  people  without 
Counterfeiting,  small  change.  Then  the  practice  of  halving 
and  quartering  the  bills  came  into  vogue,  and 
this  opened  a  new  door  to  fraud.  The  counterfeiters  halved 
and  quartered  their  own  bills  and  united  the  parts  to  the 
corresponding  parts  of  genuine  ones  and  sometimes  attached 
the  half  of  a  five-pound  note  to  the  half  of  a  ten.  There 
was  no  end  to  their  tricks.  Some  bills  of  small  denomina- 
tions circulated  after  they  were  known  to  be  counterfeit. 

Worn-out    bills   were   an    ever   recurring    nuisance.      All 
sorts  of  opprobrious  epithets  were  heaped  upon  them.     They 


COLONIAL    BILLS    OF    CREDIT. 

About  half  size  of  original. 


7W/W  Shillings. 


t*HIS  BILL   by  LAW  (hall  pafs  current  in 
r«»  Nsw.lj,,,,,  (ot  On,  Oun.e.  [  •  •  ]  n,«o  Ptnnv- 


One  Pound  Ten  Shillings. 


Ira 

LAW  of  the  COLONY  of 

ehis«ill  (hall  be 


Mk,  this  Bill  (hall  be  received 
in  all  Payments  in  the  TREASOHY, 
for  fcen  p0u.tfc  New -York, '^  nun 


COLONIAL  PAPER  MONEY.  129 

were  called,  in  various  statutes,  old,  worn,  torn,   tattered, 
shattered,  ragged,  mutilated,  defaced,  obliterated,  illegible 

and  "  unfit  to  pass."  I  have  some  in  my 
Wearing  out.  possession  to  which  all  these  epithets  might 

be  justly  applied. 

The  depreciation  of  the  bills  varied  in  the  different 
colonies.  In  Massachusetts  the  maximum  depreciation  was 
ii  for  i  (the  standard  being  Proclamation  money).  In  Con- 
necticut it  was  8  for  i.  In  1763  the  value  of  the  New 

Hampshire  shilling  was  a  little  less  than  a 
Depreciation.  half-penny;  in  1771  it  vanished  altogether. 

Rhode  Island  old  tenor  bills  in  1770  were 
worth  26  for  i.  Those  of  North  Carolina  were  10  for  i  ;  of 
South  Carolina  7  for  i.  The  bills  of  the  middle  colonies 
were  kept  within  reasonable  bounds  —  a  result  due  mainly 
to  the  stubbornness  of  their  Governors..  The  maximum  de- 
preciation in  New  York  was  only  25  per  cent  in  comparison 
with  proclamation  money. 

In  1768  the  colony  of  New  York  fell  into  the  predicament 
of  having  no  legal  tender  money.  The  old  bills  of  credit 

had  run  out  and  the  act  of  Parliament  pre- 

vented    the    issuing   of   any    more.      Spanish 

dollars  were  current  at  eight  shillings,  but 
under  the  Proclamation  act  of  Anne  they  were  not  legal 
tender  for  more  than  six.  The  Legislature  passed  a  law 
making  gold  and  silver  legal  tender  "  at  the  rates  they  passed 
in  business."  Governor  Moore  vetoed  it  because  it  was  in 
conflict  with  the  Proclamation  act. 

The  Legislature  next  passed  a  bill  for  emitting  ,£120,000 
in  bills  of  credit  to  be  loaned  at  5  per  cent  interest  for 
fourteen  years.  These  were  not  legal  tender  but  were  re- 
ceivable for  all  public  dues.  When  this  measure  came  be- 
fore the  Lords  of  Trade  they  referred  it  to  the  Privy  Coun- 
cil for  an  opinion  whether  the  making  of  the  bills  legal 


130  REPRESENTATIVE  MONEY. 

tender  at  the  public  treasury  was  in  conflict  with  the  act  of 

Parliament  of  1763.     The  matter  was  referred  to  the  law 

officers  of  the  Crown,  who  decided  that  it  was 

JDecijrtraiaiw.  in  conflict  with  that  act  Lieutenant-Gover- 
nor Golden  was  now  in  the  executive  chair. 
Notwithstanding  the  adverse  decision  of  the  home  govern- 
ment on  the  last-mentioned  bill  he  gave  his  approval  in  1770 
to  another  bill  of  the  same  kind.  For  this  he  was  severely 
censured  by  the  home  government  and  the  bill  disallowed 
for  the  same  reasons  as  before.  Parliament,  however,  passed 
a  special  act  authorizing  the  colony  to  issue  ,£120,000  in 
bills,  which  should  be  receivable  at  the  treasury,  but  not 
legal  tender  between  individuals.  These  bills  were  issued 
and  were  outstanding  at  the  beginning  of  the  Revolution. 

The  pamphlets  and  records  of  the  colonial  period  are 
filled  with  accounts  of  the  distress  and  demoralization  caused 
by    depreciated    paper    money    made    legal    tender.     The 
accumulations  of  age  and  the  inheritances  of 
Swindling.  orphans  were  swept  away  by  this  remorseless 

demon.  So  too  were  the  earnings  of  the  wage- 
worker.  In  order  to  avoid  the  losses  from  a  depreciating 
standard  of  value,  resort  was  had  by  workingmen  to  "  store 
pay"  and  here  they  were  generally  cheated  25  per  cent. 
Trustees  and  executors  having  money  in  their  hands  be- 
longing to  other  people,  seeing  how  things  were  going,  often 
postponed  payment  on  frivolous  pretexts,  since  each  delay 
enabled  them  to  settle  their  accounts  with  less  value,  thus 
"  devouring  widows'  houses."  Not  only  was 
Mob  Law.  bad  blood  stirred  up  by  the  resistance  of  the 

royal  Governors,  but  a  spirit  of  lawlessness 
was  engendered  against  the  local  assemblies  if  they  showed 
a  disposition  to  resist  the  demands  of  the  greenbackers  of 
that  day.  Even  after  the  Revolution  the  Legislature  of 
New  Hampshire  was  mobbed  because  it  refused  to  issue 


COLONIAL  PAPER  MONEY.  131 

legal  tender  bills.     One  of  the  demands  of  Shays's  rebellion 

in  Massachusetts  was  for  more  paper  money.  In  Rhode 
Island  after  the  Revolution  a  general  system 

Repudiation.  of  repudiation  of  debts,  public  and  private, 
was  undertaken  and  carried  through  by  means 

of  legal  tender  paper  in  spite  of  the  decisions  of  her  courts. 
This  teaches  that  a  popular  government  when  once  started 

after  the  ignis  fatuus  of  irredeemable  paper  cannot  stop 
itself.  Those  who  are  behind  push  those  who 
are  in  front  over  the  precipice.  Our  own 
history  during  the  civil  war  is  almost  the  only 

example  of  a  successful  resistance  to  the  last  desperate 

plunge  which  ends  in  financial  ruin.     The  South  did  take 

the  plunge. 

Now  let  us  inquire  what  happened  when  colonial  bills  of 

credit  were  issued  as  loans  to  private  individuals.     What 

the  borrowers  wanted  was  circulating  capital.      They  did 
not  borrow  the  bills  in  order  to  look  at  them, 
E  u^  *°  sPenc^  them  for  store  goods,  provisions, 


building  materials,  labor,  etc.  The  wages 
they  paid  to  laborers  were  expended  for  store  goods,  pro- 
visions, etc.  ;  so  we  may  say  that  the  borrowers  of  the  bills 
of  credit  aimed  to  get  control  of  the  useful  things  that  were 
on  sale  in  the  community,  and  that  they  succeeded  in  doing 
so.  Now,  whether  the  bills  depreciated  or  not,  it  is  evident 
that  the  borrowers  got  an  advantage  over  their  neighbors, 
because  they  obtained  control  of  this  circulating  capital  at 
lower  rates  than  others  had  to  pay.  This  was  precisely  the 
reason  why  they  wanted  the  loan  bills  to  be  issued.  If  they 
could  have  borrowed  at  the  same  rate  in  the  open  market, 
there  would  have  been  no  reason  for  borrowing  from  the 
Government.  But  the  injustice  did  not  stop  there.  What- 
ever they  took  out  of  the  loan  market  in  this  way  caused  a 
scarcity,  and  a  rise  of  the  rate  of  interest,  for  other  bor- 


132  REPRESENTATIVE  MONEY. 

rowers.  One  of  the  most  observing  pamphleteers  of  the 
day  tells  us  that  the  rate  of  interest  on  "natural  loans" 
always  advanced  after  a  public  loan.  This  was  due  in  part 
to  the  withdrawal  of  loanable  capital,  and  in  part  to  the  fear 
of  lenders  that  the  bills  would  depreciate  in  consequence  of 
the  new  emission.  Most  commonly  they  did  depreciate. 

The  borrowers  were  for  the  most  part  land- 
Landownersf  °f  owners-  Only  two  kinds  of  security  were 

allowed  by  law,  land  and  plate.  Very  little 
plate  was  ever  offered  at  the  loan  offices.  The  landowners 
controlled  the  legislative  assemblies  everywhere.  Thus  the 
emission  of  bills  of  credit  on  loan  was  a  conspiracy  of 
needy  landowners  against  the  rest  of  the  community. 

The  effect  of  a  depreciating  currency  is  similar  to  that  of 
clipped  coin.  If  all  the  money  in  the  country  were  metallic, 
and  if  each  man,  upon  receiving  a  piece,  should  be  privileged 
to  shave  off  one  per  cent  before  passing  it,  and  if  the  law 
required  everybody  to  accept  the  remainder  at  its  face  value, 

the  consequences  would  be  like  those  which 

f  ollowed  the  emission  of  colonial  bills  of  credit. 

In  the  course  of  time  the  whole  coinage  would 
be  reduced  to  a  fraction,  say  one-tenth,  of  its  original  weight. 
If  the  rulers  of  the  people  should  then  decree  that  the 
pieces  should  pass  only  for  their  actual  value,  and  that  new 
coins  should  be  struck  at  the  mint  of  full  weight,  but  that 
clipping  might  go  on  as  before,  we  should  have  old  tenor 
and  new  tenor  just  as  they  had  in  New  England  in  the  i8th 
century.  There  is  one  difference,  however,  in  favor  of 
clipped  coin.  Nobody  loses  anything  by  merely  holding  it. 
Nobody  can  shave  off  any  part  of  it  except  the  owner.  In 
the  case  of  a  depreciating  currency,  the  longer  you  keep  it, 
the  more  you  lose. 

Bills  of  credit  caused  a  distribution  of  property  different 
from  that  which  would  have  taken  place  under  ordinary  con- 


COLONIAL  PAPER  MONEY.  133 

ditions.  Was  this  distribution  better  than  the  ordinary  one? 
The  question  may  be  answered  on  grounds  of  justice  and  on 
those  of  expediency. 

It  seems  to  be  consonant  with  justice  that  property  should 

belong  to  the  person  who  earns  it.     Society  has  advanced 

to  its  present  stage  on  that  belief.     There  is 

a  theory  afloat  that  the  state'  by  taking  suf- 
ficient pains  and   by  having  the  wisest  and 

best  men  always  at  the  head  of  affairs,  might  make  a  more 
equitable  distribution  of  the  gains  of  the  community  than  by 
allowing  each  man  to  have  what  he  earns.  Whether  this 
theory  be  sound  or  not,  it  implies  an  elaborate  design,  and 
great  care  in  its  execution.  Haphazard  is  no  part  of  the 
conception  ;  but  haphazard  was  the  main  element  of  dis- 
tribution by  bills  of  credit,  and  must  be  the  main  element  of 
any  similar  scheme.  Justice  has  no  place  in  it. 

Usually  that  which  is  just  is  also  expedient.     It  is  cer- 
tainly expedient   that   capital  be   accumulated,   since   this 
alone  stands  between  mankind  and  every  form  of  misery. 
Capital   is  food,   shelter,  rest,  recreation,  in- 

Retards  the  struction  and  improvement.    That  which  tends 

Formation  of  .  .. 

Capital.  to  the  growth  of  capital,  tends  to  the  upbuild- 

ing of  the  human  race.  Capital  is  the  result 
of  industry  and  saving.  It  is  the  difference  between  total 
production  and  total  consumption.  Nothing  is  more  dis- 
couraging to  industry  and  saving  than  uncertainty  as  to  the 
rewards  thereof.  If  it  is  reasonably  certain  that  what  a  man 
earns  shall  belong  to  himself  and  his  children,  he  has  an 
incentive  to  work  and  save.  Bills  of  credit  brought  uncer- 
tainty into  all  business  affairs  and  to  that  extent  discouraged 
the  formation  of  capital.  Our  ancestors  had  a  new  country 
and  a  virgin  soil,  so  that  they  must  have  made  some  prog- 
ress even  with  bad  money.  It  is  impossible  to  say  how 
much  they  were  kept  back  by  their  wretched  bills  of  credit, 


134  REPRESENTATIVE  MONEY. 

but  it  cannot  be  doubted  that  the  growth  of  capital  was  re- 
tarded. We  know,  too,  that  public  morals  were  corrupted 
and  the  sense  of  right  and  wrong  deadened. 


CHAPTER    III. 
CONTINENTAL   MONEY. 

BAD  as  the  colonial  fiat  money  was,  that  of  the  revolu- 
tionary period  was  worse.  Our  ancestors  went  to  war  with- 
out being  prepared.  They  had  no  money  and  no  system  of 
taxation. 

Nevertheless  they  understood  the  nature  of  fiat  money. 
The  experience  of  the  past  had  not  been  forgotten.  Even 
Franklin,  who  had  been  a  pronounced  green- 
backer  in  earlier  times,  now  recoiled.  When 
the  first  paper  money  was  proposed  in  the 
Continental  Congress  (June,  1775)  he  urged  that  the  bills 
should  bear  interest,  in  order  to  prevent  depreciation.  When 
the  second  issue  was  proposed  he  urged  that  Congress 
should  borrow  on  interest  the  bills  already  authorized.  Both 
of  these  plans  were  rejected.  The  third  issue  bore  interest, 
and  now  Franklin  urged  that  the  interest  should  be  payable 
in  "  hard  dollars."  This  was  voted  to  be  impracticable. 

There  was  much  confusion  of  ideas  concerning  details. 
While  taking  time  to  consider  them  it  was  voted  in  July, 
1775,  to  issue  due  bills  for  two  million  Spanish  milled  dol- 
lars to  be  sunk  by  taxes  in  four  successive  years,  beginning 
November  30,   1779,  the  taxes  to  be  levied 
First  issues.         and  collected  by  the  States  in  proportion  to 
their    population.     The   bills   were   not  legal 
tender.     The  Congress  had  no  power  to  make  them  legal 
tender,  but  in  January,  1777,  it  recommended  that  the  States 
should  do  so  ;   and  this  they  did,  one  after  another,  in  one 


CONTINENTAL  MONEY.  135 

way  and  another.  Before  the  two  millions  were  issued  an- 
other million  was  wanted,  and  was  authorized,  together  with 
three  millions  more  before  the  end  of  the  year.  Nine  mil- 
lions more,  or  fifteen  in  all,  were  out  before  independence 
was  declared.  It  was  called  continental  currency  to  distin- 
guish it  from  the  issues  of  the  separate  States. 

From  this  time  the  demon  of  fiat  money  had  possession 
of  the  country  and  worked  its  will  on  the  inhabitants.  The 
issues  ran  on,  in  an  increasing  volume,  till  they  amounted 
to  two  hundred  and  forty-two  million  dollars  in  the  year 
1779.  In  1781  the  whole  mass  became  worthless.  The 
essays  of  Pelatiah  Webster  on  this  subject 
Pelatiah. Webster,  have  become  classic.  Mr.  Webster  was  a 
merchant  of  Philadelphia  and  an  ardent  pa- 
triot. He  wrote  while  the  paper  money  experiment  was 
going  on.  We  can  readily  believe  him  when  he  says  :  "  We 
have  suffered  more  from  this  than  from  every  other  cause  of 
calamity ;  it  has  killed  more  men,  pervaded  and  corrupted 
the  choicest  interests  of  our  country  more,  and  done  more 
injustice  than  even  the  arms  and  artifices  of  our  enemies." 
In  his  first  essay  (October  5,  1776)  Mr.  Webster  says 
that  he  cannot  discern  any  depreciation  as  yet,  or  any  ad- 
vance in  the  prices  of  goods  beyond  what  a  state  of  war 
would  occasion  even  if  the  currency  consisted 
of  S°ld  and  silver  exclusively.  On  the  other 
hand  Professor  Sumner  has  collected  evidence 
showing  that  at  some  places  goods  were  sold  at  lower  prices 
for  silver  than  for  bills  even  before  the  Declaration  was 
signed.1  It  is  certain  that  committees  were  at  work  early 
in  1776  attending  to  the  cases  of  persons  who  discriminated 

1  There  are  several  histories  of  the  continental  currency.  That  of 
Professor  Sumner  in  his  Financier  and  Finances  of  the  American  Revo- 
lution is  much  the  best.  Mr.  A.  S.  Bolles,  in  his  Financial  History 
of  the  U.  S.,  has  been  an  industrious  collector  of  facts. 


136  REPRESENTATIVE  MONEY. 

against  paper  money.  The  most  common  punishment  for 
this  offense  was  seizing  some  portion  of  the  offender's  goods 
and  declaring  him  an  enemy  of  his  country.  That  this  was 
no  trifling  penalty  is  attested  by  the  fact  that  nearly  every 
one  recanted,  and  promised  amendment.  Nevertheless  the 
number  of  offenders  increased  continually.  In  Philadelphia 
in  the  latter  part  of  1776  one  of  the  penalties  was  the  clos- 
ing of  the  shops  of  the  guilty  parties.  This  caused  prices 
to  rise  by  giving  a  monopoly  to  the  others.  When  this 
effect  was  observed  the  first  culprits  were  allowed  to  reopen. 

Early  in  1777  the  depreciation  had  become  too  great  to 
be  ignored.  Committees  were  appointed  in  nearly  all  the 
States  to  prevent  engrossing  and  forestalling.  One  way  was 
to  buy  all  the  goods  of  a  particular  kind  in  sight  for  the  use 
of  the  army  and  to  require  the  owners  to  accept  continental 
money  for  it.  This  involved  the  necessity  of  deciding  how 
much  the  owners  were  entitled  to  retain  for  their  own  use  or 
to  meet  engagements  previously  made.  It  was  necessary 
also  to  fix  the  rate  of  wages  of  labor.  At  a  later  period  the 
depreciation  was  so  rapid  that  Professor  Sumner  says  a  man 
might  lose  his  whole  wages  while  earning  them. 

Price  conventions  were  the  next  resort.     The  first  one 

was  held  at  Providence.     It  was  composed  of  delegates  from 

the  four  New  England  States.     It  fixed  the  prices  at  which 

imported  goods  might  be  sold,  but  an  exception  was  made  of 

arms  and  ammunition  in  order  to  encourage 

Price  Conven-       their    importation.       Retailers    were    not    to 

tion  in  New 

England.  charge  more  than  20  per  cent  advance.     The 

regulation  of  prices  of  domestic  products  was 
left  to  the  States,  as  was  also  the  penalty  for  overcharging. 
Rhode  Island  enacted,  in  addition  to  other  penalties,  that  if 
anybody  withheld  from  sale  any  goods  required  for  the  army 
or  navy  the  State  officers  might  seize  them  and  if  neces- 
sary break  open  buildings.  A  little  later  it  was  enacted  that 


CONTINENTAL  MONEY.  137 

buildings  containing  any  goods   needed  by  the  community  — ^ 
and  withheld  by  the  owners  might  be  broken  open  and  the     --* 
contents   sold   at  the  statutory  prices.     An  exception  was 
made  of  salt  as  being,  like  arms  and  ammunition,  an  indis- 
pensable   article.      The    effect  of   these   laws  was  to    dis- 
courage   importation.      Nobody   would  bring 
^ed&lary  6g        m  &°°ds  to  be  exposed  to  legal  depredation.   ^ 

Accordingly  the  Rhode  Island  laws  against 
engrossing  were  repealed  after  a  few  months.  The 
course  of  proceedings  in  Connecticut  was  substantially 
the  same.  This  State,  however,  had  a  law  to  prohibit 
persons  from  buying  any  more  goods  than  the  selectmen 
should  judge  to  be  necessary  for  the  use  of  their  respective 
families.  Anything  like  prudence  in  laying  in  supplies  was  / 
forbidden. 

A  price  convention  of   the  six    Middle   States  was  held 

at  York,    Pa.,    in    March,    1777,    but  was  unable   to   agree 

upon  a  single  point.     Three  States  voted  that 

Price  Convention  maximum  prices  should  be  fixed,  that  sales  bv 
of  the  Middle 

States.  auction  should  be  forbidden,  and  that  impor- 

tation (which  had  fallen  off  in  consequence  of 
the  disorderly  proceedings  of  committees)  should  be  en- 
couraged by  bounties.  Three  voted  against  these  propo- 
sitions, believing  that  they  would  only  aggravate  the  evils. 
The  subject  was  accordingly  referred  back  to  the  States,  but 
the  execution  of  the  price-limiting  laws  was  oftener  in  the 
hands  of  mobs  than  of  the  constituted  authorities.  In 
Albany  two  persons  who  had  sold  rum  for  more  than  the  — * 
established  price  were  taken  to  the  market  place  and  put  on  — -* 
a  scaffold,  when  they  fell  on  their  knees,  acknowledged 
themselves  guilty,  and  promised  to  observe  the  law  and  help 
to  enforce  it  upon  others.  Every  method  of  evasion,  such 
as  trade  by  barter,  subjected  persons  to  suspicion.  Richard 
Henry  Lee  commuted  his  rents  to  payment  in  produce. 


138  REPRESENTATIVE  MONEY. 

For  this  he  was  denounced  as  a  Tory  and  left  out  of  Con- 
gress at  the  next  election. 

Mr.  Webster,  in  one  of  his  essays,  said  that  not  more 
than  one  man  in  ten  thousand  was  capable  of  understanding 
the  subject.     The  greatest  man  of  the  period  did  not  under- 
stand it.     December  12,  1778,  Washington  wrote  to  Reed, 
the  President  of  Pennsylvania,  commending 

First  View*'*  ^s  zea^  "  *n  brniging  those  murderers  of  our 
cause,  the  monopolizers,  forestallers  and  en- 
grossers,1 to  condign  punishment.  It  is  much  to  be  lamented," 
he  continued,  "  that  each  State,  long  ere  this,  has  not  hunted 
them  down  as  pests  to  society  and  the  greatest  enemies  we 
have  to  the  happiness  of  America.  I  would  to  God  that 
some  one  of  the  more  atrocious  in  each  State  was  hung  in 
gibbits  upon  a  gallows  five  times  as  high  as  the  one  pre- 
pared by  Haman."  Yet  he  had  written,  more  than  a  year 
earlier  (September  28,  1777),  to  John  Parke  Custis,  directing 
him  to  see  that  the  rent  of  certain  land  and  slaves  should 
be  so  arranged  that  the  payments  should  have  a  relative 
value  to  the  currency.  "  I  do  not  mean  by  this,"  he  says, 
"  that  I  am  unwilling  to  receive  the  paper  money.  On  the 
contrary  I  shall  with  cheerfulness  receive  payment  in  any- 
thing that  has  currency  at  the  time  of  payment,  but  of  equal 
value  then  to  the  intrinsic  worth  at  the  time  of  fixing  the 
rent."  Again  (October  10,  1778),  only  two  months  before  he 
wrote  to  Reed  about  hanging  monopolizers,  forestallers 
and  engrossers,  he  wrote  to  Custis  advising  him  not  to  ac- 
cept money  for  a  piece  of  land  he  was  about  to  sell,  but 
to  take  other  land  in  exchange  for  it,  because  the  money 
might  lose  its  value.  This  was  just  what  the  monopolizers, 
forestallers  and  engrossers  apprehended. 

Washington    was   an  honest  man.     It  never  occurred  to 

1  Forestalling  is  buying  goods  before  they  reach  the  market,  in  order 
to  sell  them  at  a  higher  price.     Engrossing  is  the  same  as  monopolizing. 


CONTINENTAL  MONEY.  139 

him  that  he  was  doing  with  his  land  and  slaves  exactly  what 
the  others  were  doing  with  their  provisions  and  store  goods. 
But,  a  year  later,  his  eyes  were  wide  open.  In  August,  1779, 
he  wrote  to  his  agent,  Lund  Washington,  that  he  would  no 
longer  accept  continental  money  on  contracts  made  before 
the  war,  unless  other  people  did  the  same. 

"The  law>"  he  says>  "  undoubtedly was  wel1 

designed.  It  was  intended  to  stamp  a  value 
upon,  and  to  give  a  free  circulation  to  the  paper  bills 
of  credit,  but  it  never  was  nor  could  have  been  intended 
to  make  a  man  take  a  shilling  or  sixpence  in  the  pound 
for  a  just  debt,  which  the  debtor  is  well  able  to  pay,  and 
thereby  involve  himself  in  ruin.  ...  If  sacrificing  my 
whole  estate  would  effect  any  valuable  purpose  I  would  not 
hesitate  one  moment  in  doing  it.  But  my  submitting  in 
matters  of  this  kind  unless  the  same  is  done  by  others  is  no 
more  than  a  drop  in  the  bucket.  In  fact,  it  is  not  serving 
the  public  but  enriching  individuals  and  countenancing  dis- 
honesty, for  I  am  sure  no  honest  man  would  attempt  to  pay 
twenty  shillings  with  one  or  perhaps  half  of  one.  In  a  word 
I  would  rather  make  a  present  of  the  bonds  than  receive 
payment  for  them  in  so  shameful  a  way." 

After  the  Revolution  and  to  the  end  of  his  life,  Washing- 
ton was  an  inflexible  opponent  of  bills  of  credit,  and  he  had 
need  to  use  all  his  influence  against  that  form  of  debauchery 
in  Virginia. 

With  the  mass  of  the  people  nothing  could  be  done.  All 
of  them,  the  wise  and  unwise  together,  were  hurrying  to  a 
cataclysm.  "The  fatal  error,"  says  Webster, 

"that  the  credit  and  currency  of  the  con- 

tinental  money  could  be  kept  up  and  sup- 
ported by  acts  of  compulsion  entered  so  deep  into  the  mind 
of  Congress  and  all  departments  of  administration  through 
the  States  that  no  considerations  of  justice,  religion,  or 


140  REPRESENTATIVE  MONEY. 

policy,  or  even  experience  of  its  utter  inefficiency  could 
eradicate  it.  It  seemed  to  be  a  kind  of  obstinate  delirium, 
totally  deaf  to  every  argument  drawn  from  justice  and  right, 
from  its  natural  tendency  and  mischief,  from  common  sense 
and  even  common  safety.  This  ruinous  principle  was  con- 
tinued in  practice  for  five  successive  years,  and  appeared  in 
all  shapes  and  forms,  i.e.,  in  tender  acts,  in  limitations  of 
prices,  in  awful  and  threatening  declarations,  in  penal  laws 
with  dreadful  and  ruinous  punishments,  and  in  every  other 
way  that  could  be  devised,  and  all  executed  with  a  relentless 
severity,  by  the  highest  authorities  then  in  being,  viz.,  by 
Congress,  by  assemblies  and  conventions  of  the  states,  by 
committees  of  inspection  (whose  powers  in  those  days  were 
nearly  sovereign),  and  even  by  military  force  ;  and  though 
men  of  all  descriptions  stood  trembling  before  this  monster 
of  force,  without  daring  to  lift  a  hand  against  it,  during  all 
this  period,  yet  its  unrestrained  energy  ever  proved  ineffec- 
tual to  its  purposes,  but  in  every  instance  increased  the  evils 
it  was  designed  to  remedy,  and  destroyed  the  benefits  it  was 
intended  to  promote  ;  at  best,  its  utmost  effect  was  like  that 
of  water  sprinkled  on  a  blacksmith's  forge,  which  indeed 
deadens  the  flame  for  a  moment,  but  never  fails  to  increase 
the  heat  and  force  of  the  internal  fire.  Many  thousand 
families  of  full  and  easy  fortune  were  ruined  by  these  fatal 
measures,  and  lie  in  ruins  to  this  day,  without  the  least 
benefit  to  the  country,  or  to  the  great  and  noble  cause  in 
which  we  were  then  engaged." 

When  the  price  conventions  failed  of  their  object  new 
ones  were  held  fixing  new  limits,  as  for  example  fourfold  the 
prices  of  1774,  then  eightfold,  then  tenfold,  then  twenty- 
fold,  terrorism  being  applied  in  each  case  to  enforce  the  de- 
crees. Country  folks  accused  town  folks  of  extortion  and 
threatened  to  come  in  and  take  what  they  wanted  by  force. 
Town  folks  accused  country  folks  of  withholding  their 


CONTINENTAL  MONEY.  141 

produce.     Laws  were  enacted  against  withholders.     Anony- 
mous handbills  and  broadsides  were  circulated  threatening 
vengeance  on  merchants.     Turmoil  was  every- 

Social  Terror-       where.     Society  was  like  a  train   of   Eskimo 
ism.  .''"". 

dogs   when   the    driver   hits  the  leader  with 

the   whip   and   he   turns   and   falls   upon   the   dog   behind 
him,  and  presently  the  whole  pack  are  piled  together  in 
battle,  nobody  knowing  what  it  is  all  about.     In  October, 
1779,  Boston  was  on  the  verge  of  starvation  ;  money  trans- 
actions had  nearly  ceased,  and  business  was  done  by  barter. 
In  May,   1779,  two  regiments  of  Connecticut  troops  re- 
volted on  account  of  their  bad  pay.     In  January,  1781,  the 
Pennsylvania  line  broke  into  mutiny  for  the 
Soldiers  °*  same  reason  and  killed  a  captain  who  tried  to 

bring  them  to  submission.  A  soldier's  pay 
had  dropped  by  depreciation  from  $7  per  month  to  33  cents, 
although  it  had  been  twice  raised  by  Congress.  Washington 
could  not  move  his  army  to  Yorktown  till  Robert  Morris  had 
borrowed  hard  money  from  Rochambeau  for  their  back  pay. 
In  March,  1780,  Congress  tried  the  colonial  experiment  of 
"new  tenor"  in  a  very  awkward  and  roundabout  way,  and 
declared  old  tenor  to  be  worth  forty  for  one,  the  actual  de- 
preciation being  sixty  for  one.  As  it  was  sup- 
"  New  Tenor."  posed  that  $200,000,000  of  continental  money 
was  now  out,  this  was  a  repudiation  of  all  but 
$5,000,000  of  it.  The  depreciation  then  went  on  more 
rapidly  than  before.  The  new  tenor  bills  started  at  a  de- 
preciation of  2  for  i,  which  became  3  for  i  before  they 
reached  the  army  and  dropped  to  6  for  i  in  a  few  months. 
Old  tenor  went  at  a  galloping  pace  down  to  500  for  i  in 
Philadelphia,  when  it  ceased  to  circulate.  In  the  remoter 
districts  of  the  South,  it  continued  in  circulation  nearly  a 
year  longer,  and  until  the  depreciation  had  reached  1,000 
for  i.  The  Southern  people,  when  they  learned  that  they 


142  REPRESENTATIVE  MONEY. 

had  been  using  the  stuff  long  after  it  had  become  worthless 
in  the  North,  thought  that  they  had  been  cheated  by  the 
Yankees. 

Counterfeiters  had  been  at  work  all  the  time  and  with  so 
much  success  that  Congress  was  obliged  to  call  in  the  entire 
issues  of  certain  dates  and  declare  them  un- 
Counterfeiting.  current  after  a  fixed  period.  The  issues  thus 
branded  fell  25  per  cent  as  compared  with 
those  not  branded.  Still,  counterfeiting  only  hastened  the 
impending  crisis,  and  in  that  respect,  it  was  a  public  advan- 
tage ;  for,  as  soon  as  paper  money  was  dead,  hard  money 
sprang  to  life,  and  was  abundant  for  all  purposes.  Much 
had  been  hoarded  and  much  more  had  been  brought  in  by 
the  French  and  English  armies  and  navies.  It  was  so 
plentiful  that  foreign  exchange  fell  to  a  discount. 

When  the  paper  had  become  clearly  unmanageable,  early 
in  1779,  Congress  bethought  itself  of  "specific  supplies"  as 
a  means  of  feeding  the  army.     Under  this  plan  requisitions 
were  made  upon   the  States   for  beef,  pork, 
JJj£  1(  flour,  corn,  forage,  etc.     Contrary  to  expecta- 

tion this  'was  found  to  be  the  worst  device  of 
all,  since  it  needed  a  vast  new  system  of  transportation, 
warehousing  and  accountability,  and  opened  the  door  to  in- 
numerable frauds.  Robert  Morris,  the  Superintendent  of 
Finance,  protested  against  it  in  the  beginning  as  the  most 
wasteful  method  of  supplying  the  army,  but  his  protest  was 
unheeded.  Nothing  would  open  the  eyes  of  Congress  but 
an  experiment.  Instantly,  there  was  a  tangle  of  the  public 
accounts  which  nobody  could  unravel.  In  some  cases  flour 
collected  for  the  army  was  not  forwarded  because  there  was 
no  money  to  pay  teamsters.  It  remained  at  the  place  of 
collection  till  it  was  spoiled.  Other  consignments,  which 
were  actually  sent,  arrived  too  early  or  too  late,  and  were  left 
on  the  ground  exposed  to  the  weather.  Cattle  forwarded 


CONTINENTAL    CURRENCY. 

About  half  size  of  original. 


TWO  DOLLARS 

"PHIS  Bill  entitles  the 
1  Bearer  to 
"WO  SPANISH  M1LL- 
'.D  DOLLARS,  or  tht 
falue  thereof  in  GOL 
T  SILVER, according! 
Refdution  of  CON 
}RE3S.  paffed  at  Ph, 
Ftbr 


#* 


Printed  by  HALLOW  5>£L- 
LERS.     1776, 


X 

CONTINENTAL  MONEY.  143 

for  beef  were  allowed  to  wander  away.     Collections  were 
made  and  not  reported,  and  were  discovered  afterwards  by 

accident.  In  August,  1780,  Washington  was 
Failure1**6  obliged  to  send  word  to  a  body  of  militia,  who 

were  about  to  march  to  his  aid,  not  to  come 
because  he  could  not  feed  them.  Communicating  this  fact 
to  Congress  he  said,  "  The*  present  mode  of  obtaining  sup- 
plies is  the  most  uncertain,  expensive,  and  injurious  that 
could  be  devised."  He  said  that  it  had  made  impressment 
necessary,  and  that  impressment  could  not  last  long.  Many 
of  Gen.  Greene's  soldiers  could  not  leave  their  tents  because 
they  were  naked.  The  experiment  of  specific  supplies  was 
an  attempt  to  carry  on  government  without  any  medium  of 
exchange.  It  was  a  flat  failure. 

Impressment,  somewhat  disguised,  had  been  resorted  to 
from  the  time  when  continental  money  began  to  depreciate. 
To  seize  a  man's  goods  and  tender  him  irredeemable  paper, 

at  a  rate  that  he  could  not  replace  the  goods 
impressments,  for,  was  confiscation  of  the  difference  between 

paper  and  specie.  All  the  price  conventions 
were  impressment  conventions  under  another  name.  Con- 
gress recommended  the  impressment  of  horses  and  wagons 
"  at  a  reasonable  rate  "  as  early  as  1775.  Impressments  of 
this  kind  were  not  unknown  to  the  colonies.  New  York  had 
resorted  to  them  in  the  old  French  wars  and  South  Carolina 
in  her  Indian  wars.  Lists  of  articles  impressed,  with  the 
prices  attached,  are  of  frequent  occurrence  in  colonial 
statutes.  These,  however,  implied  payment  in  full  measure, 
not  long  deferred. 

When  the  continental  money  began  to  go  down  hill  fast, 
impressments  became  more  frequent.     In  Pennsylvania  so 
many  horses  and  wagons  were  impressed  that  the  country 
people  stopped  bringing  fuel  to  the  towns.     This  led  to  an     ^ 
exception,  by  the  Council  of  Safety,  of  teams  engaged  in 


144  .      REPRESENTATIVE  MONEY. 

hauling  wood  or  provisions.  In  Virginia  impressments  were 
so  numerous  that  the  people  sent  their  teams  over  the  moun- 
tains or  into  North  Carolina  for  safety.  Others 
Also  a  Failure,  made  a  practice  of  removing  and  hiding  a 
wheel  or  some  indispensable  part  of  a  wagon, 
so  that  it  might  be  useless  when  the  impressing  officers 
came.  When  Washington  arrived  in  camp  at  Yorktown 
ample  supplies  of  bacon  had  been  collected  and  stored  for 
the  army,  south  of  the  James  River,  but  they  could  not  be 
moved  because  the  impressing  officers  could  not  find  any 
teams  to  haul  them,  in  the  oldest  settled  part  of  America. 
Teamsters,  who  had  been  impressed,  threw  out  their  loads 
at  the  wrong  places.  Others  ran  away  with  them  and  did 
not  return.  Hamilton  wrote  to  Greene  that  public  credit 
was  so  totally  lost  that  nobody  would  furnish  aid  even  in 
the  face  of  impending  ruin.  All  this  was  at  the  very  crisis 
of  the  war,  while  the  fleet  of  De  Grasse  was  sailing  into 
Chesapeake  Bay!  But  for  that  fortunate  conjuncture  the 
war  could  not  have  been  continued,  so  greatly  had  the 
people  been  alienated  by  bad  money  and  the  harsh  treat- 
ment which  it  led  to. 

In  May,   1781,   Congress  recommended  that  the   States 
should  repeal  their  legal  tender  laws.     Some  of  them  had 
already  done  so,  and  now  the  rest  followed 

Suit      A11  °f  them  ad°Pted   "  scales  of  dePre- 
ciation"  for  the  settlement  of  debts.     These 

were  tables  showing  how  much  the  money  was  worth  "in 
specie  at  various  times,  and  how  disputed  accounts  should 
be  settled.  The  tables  were  notoriously  incorrect.  The  one 
recommended  by  Congress  placed  the  currency  at  par  in 
September,  1777,  whereas  it  was  worth  at  that  time  only  33 
cents  on  the  dollar.  New  confusion  and  new  wrongs  were 
introduced  by  the  new  policy.  "  The  courts  could  not  do 
justice,"  says  Prof.  Sumner,  "because  depreciation  intro- 


CONTINENTAL  MONEY.  145 

duced  a  fraud  into  the  very  essence  of  the  case,  and  the 
agent  of  the  fraud  was  almost  always  innocent,  so  far  as  his 
intention  was  concerned.  If,  therefore,  the  court  undertook 
to  release  the  victim  of  the  fraud  from  all  effect  of  the  fraud, 
the  injury  was  simply  thrown  back  on  the  perpetrator,  who 
being  innocent,  suffered  as  much  wrong  as  the  victim  would 
have  suffered  if  nothing  had  been  done." 

Continental  money  was  now  an  object  of  execration  and 
afterwards  of  derision.  "  Not  worth  a  continental  "  became 
a  synonym  for  absolute  worthlessness.  In 
the  act  of  Congress  approved  August  4,  1790, 
authority  was  granted  for  funding  the  bills  in 
6  per  cent  bonds  "  at  the  rate  of  on£  hundred  dollars  in  the 
said  bills  for  one  dollar  in  specie."  Only  $7,000,000  turned 
up  to -take  advantage  of  this  provision. 

When  the  final  catastrophe  came,  some  of  the  wise  men  of 
the  period  exclaimed  that  the  continental  money  was  simply 
a  form  of  taxation,  and  that  it  had  been  paid  and  cancelled. 
Franklin  consoled  himself  with  this  idea,  say- 
Continental  ing  that  the  bills  clothed  and  fed  the  army 
Money  consid- 
ered as  a  Tax.  and  that  they  operated  as  a  tax,  bearing  most 

heavily  on  the  rich,  as  was  proper,  since  the 
rich  had  the  most  money.  Strange  that  so  great  a  man 
could  have  been  so  deceived.  If  the  continental  money  was 
a  tax  it  did  not  bear  heaviest  upon  those  who  had  the  most, 
but  upon  those  who  kept  it  longest.  Those  who  had  money 
due  them  at  fixed  times  and  could  not  hasten  the  payment 
were  taxed  not  in  proportion  to  their  wealth  but  in  propor- 
tion to  the  time  the  debts  had  to  run.  All  who  depended 
upon  regular  interest  payments  —  and  most  of  the  charitable 
and  educational  institutions  of  the  day  were  in  this  cate- 
gory—  were  taxed  at  various  rates  up  to  97^2  per  cent  of 
their  entire  income.  It  is  a  complete  subversion  of  ideas  to 
call  this  a  tax. 


146  REPRESENTATIVE   MONEY. 

The  word  tax  is  from  the  Latin  taxare,  to  value  or  ap- 
praise. It  presumes  a  methodical  arrangement  of  the  tax- 
able persons  so  that  justice  shall  be  done  and  each  shall 
know  what  he  has  to  pay.  Taxation  is  the  opposite  of  con- 
fiscation. It  was  adopted  in  order  that  confiscation  might 

be  avoided.  Confiscation,  however,  has  the 
cation  ^  merit  of  enabling  the  government  and  people 

to  know  how  much  has-been  taken,  and  from 
whom,  so  that  when  more  propitious  times  come,  or  a  higher 
sense  of  justice  prevails,  restitution  may  be  made.  The 
kind  of  confiscation  or  taxation  that  continental  money  pro- 
duced was  a  hurly-burly.  The  government  plundered  right 
and  left,  and  instead  pf  keeping  an  account  of  persons 
and  things  it  told  the  victims  to  rob  the  next  ones  they 
came  to. 

/  Another  euphemism,  which  still  lingers,  is  that  "  the  con- 
tinental money  fell  gently  asleep  in  the  arms  of  its  last  pos- 
sessor." I  have  seen  this  in  a  newspaper  the  present 
year.  Innocent  babe !  A  truer  figure  of  speech  would 
be  that  it  passed  out  of  the  world  like  a  victim  of  delirium 
tremens. 

It  may  be  asked  what  else  could  have  been  done.  If  the 
continental  money  was  a  disguised  tax,  certainly  an  undis- 
guised one  would  have  been  better.  What  the  Government 
required  was  army  supplies.  These  were  partly  the  products 
of  the  country,  and  partly  imported,  the  latter  being  paid 

for  with  the  products  of  the  country.  The 
The  Alternative,  people  did  not  avoid  the  necessity  of  parting 

with  their  products  by  the  device  of  issuing 
paper  money.  Except  what  was  borrowed  and  begged 
abroad,  the  whole  cost  of  the  war  was  paid  by  the  thirteen 
States  out  of  their  annual  produce.  Therefore  it  was  a 
question  merely  of  how  the  contributions  should  be  levied. 
Regular  taxation  is  always  better  than  confiscation,  because 


CONTINENTAL  MONEY.  147 

it  is  more  economical  and  because  it  conserves  the  public 
morals,  the  confidence  of  the  citizens  in  their  own  govern- 
ment, and  the  respect  of  the  world. 

One  of  the  striking  phenomena  of  the  Revolution  was  the 
great  display  of  luxury.  Franklin  wrote  in  1779  :  "The  ex- 
travagant luxury  of  our  country  in  the  midst 
Display  of  of  an  its  distresses  is  to  me  amazing."  An- 

thfwar.  ^  other  writer  says  :  "  Every  form  of  wasteful- 
ness and  extravagance  prevailed  in  town  and 
country,  nowhere  more  than  in  Philadelphia  under  the  very 
eyes  of  Congress,  —  luxury  of  dress,  luxury  of  equipage, 
luxury  of  the  table."1 

This  is  not  hard  to  understand.  If  a  man  owed  $1,000 
gold  value  and  was  enabled  to  pay  it  with  $100,  he  had  $900 
disposable  for  other  purposes.  As  this  money  had  not 
come  by  hard  knocks  he  would  naturally  be  somewhat  free 
in  spending  it.  He  would  give  good  dinners,  drive  fast 
horses  and  buy  fine  clothes  and  jewelry  for  his  family.  It 
was  the  transfer  of  property  from  frugal  persons  to  spend- 
thrifts. While  it  continued  it  gave  a  deceitful  appearance 
of  prosperity.  Like  conditions  prevailed  during  the  civil 
war,  both  North  and  South. 

After  the  war  seven  States  (Rhode  Island,  New  York, 
New  Jersey,  Pennsylvania,  the  Carolinas  and 
tiow?C<Biiis  Georgia),  plunged  into  paper-money  debauch- 
ery afresh.  There  were  also  severe  struggles 
over  the  question  in  New  Hampshire,  Massachusetts,  Mary- 
land and  Virginia.2 

Judge  Story,  referring  to  the  revolutionary  and  post-revo- 
lutionary legal  tender  laws,  says  : 

"They  entailed  the  most  enormous  evils  on  the  country 

1  Greene's  Historical  Review  of  the  American  Revolution. 

2  See  the  first  volume  of  McMaster's  History  of  the  People  of  the 
United  States,  where  these  movements  are  well  described. 


148  REPRESENTATIVE  MONEY. 

and  introduced  a  system  of  fraud,  chicanery  and  profligacy 
which  destroyed  all  private  confidence  and  all  industry  and 
enterprise."  l 


CHAPTER    IV. 
THE  GREENBACKS. 

THE  historian  Ramsay,  commenting  on  an  act  passed  by 
the  Legislature  of  South  Carolina  in  1736  for  an  emission 
of  bills  of  credit,  says  : 

"  It  is  remarkable  that  though  the  American  Revolution 
took  place  only  forty  years  after  these  events,  they  were  so 
little  known  as  to  be  never  referred  to  in  the  debates  relative 
to  paper  money.  In  the  interval  a  new  race  had  sprung  up, 
who  had  no  personal  knowledge  of  them.  Tradition  was 
obscure.  History  was  silent.  Newspapers  gave  no  in- 
formation. Old  official  records  were  seldom  or  never  re- 
ferred to.  From  these  causes  the  Carolinians  of  1776  had 
little  knowledge  of  what  their  forefathers  had  done  in  1736 
or  1719.  ft  is  hoped  that  in  consequence  of  the  present  increas- 
ing means  of  diffusing  and  perpetuating  knowledge,  the  like  will 
not  occur  again" 

How  far  Dr.  Ramsay's  reliance  on  "  the  increasing  means 
of  diffusing  and  perpetuating  knowledge"  was  justified,  we 
shall  now  see. 

The  United  States  Constitution  prohibited  the  States 
from  emitting  bills  of  credit  or  making  anything  but  gold 
and  silver  a  tender  in  the  payment  of  debts. 
Bills  of  Credit  Mr.  George  Bancroft  shows,  pretty  condu- 
ction, sively,  that  the  framers  of  the  constitution  in- 
tended by  this  act  to  prohibit  bills  of  credit 
altogether,  since  no  power  was  delegated  to  Congress  to 
issue  them  and  since  all  powers  not  delegated  were  re- 

1  Story  on  the  Constitution,  ii,  1371. 


THE  GREENBACKS.  149 

served.1  Albert  Gallatin  was  of  this  opinion.2  This  view 
receives  some  support  from  the  fact  that  the  power  to  emit 
bills  of  credit  was  expressly  conferred  on  the  general  govern- 
ment by  the  Articles  of  Confederation,  whereas  it  was  now 
stricken  out.  Hamilton  thought  that  although  there  was  no 
express  prohibition  in  the  Constitution  the  spirit  of  that 
instrument  was  adverse,  and  should  be  obeyed.  Whatever 
we  may  think  of  this  question,  it  is  certain  that  only  once 
was  it  ever  proposed  in  Congress  to  issue  legal  tender  notes, 
until  the  year  1862. 

This  single  occasion  was  in  the  War  of  1812   and  during 
the  darkest  hours  the  country  had  seen  since  Washington's 
winter  at  Valley  Forge.     On  the  i2th  of  No- 
vember>   I8l4,    Mr.    Hall,   of  Georgia,   intro- 
duced   in    the    House    five    resolutions    on 
questions   of   finance,    the   second  of  which  was  in  these 
words : 

"  RESOLVED,  that  the  Treasury  notes,  which  may  be  issued 
as  aforesaid,  shall  be  a  legal  tender  in  all  debts  due,  or 
which  may  hereafter  become  due,  between  the  citizens  of. 
the  United  States,  or  between  a  citizen  of  the  United  States 
and  a  citizen  or  subject  of  any  foreign  State  or  Kingdom." 

The  House,  by  42  to  95,  refused  even  to  consider  this 
resolution.  It  took  up  the  other  four,  and  after  hearing 
what  Mr.  Hall  had  to  say  for  them,  tabled  them. 

The  Civil  War  began  in  1861.  On  the  Qth  of  August,  the 
Secretary  of  the  Treasury,  Salmon  P.  Chase,  met  the  prin- 
cipal .bank  officers  of  New  York  and  negotiated  from  them 
three  loans,  of  fifty  million  dollars  each,  in  which  the  banks 
of  Boston  and  Philadelphia 'participated  in  proportion  to  their 
capital.  Of  the  details  of  these  loans  only  one  is  now  im- 

1  The  Constitution  of  the  U.  S.  of  America  Wounded  in  the  House 
of  its  Guardians,  by  George  Bancroft,  Pamphlet,  1884. 

2  Writings  of  Gallatin,  vol.  iii,  p.  235. 


150  REPRESENTATIVE  MONEY. 

portant.     Congress  had  passed  a  law,  only  four  days  before 

this  meeting  took  place,   suspending  the  operation  of  the 

Sub-Treasury  act,   so  as  to  allow  the  Secre- 

Secretary Chase    tary  to    deposit   public    money    in    "solvent 

and  the  Banks  .  .        ,  . 

of  New  York.        specie-paying  banks      and  to  withdraw  it  at 

his  own  convenience  and  pleasure  for  the  pay- 
ment of  public  dues.  In  short  he  was  permitted  to  handle 
the  proceeds  of  the  three  loans  in  whatsoever  way  he  pleased. 
He  was  strongly  urged  by  Mr.  James  Gallatin,  President  of 
the  National  Bank  of  New  York,  and  by  the  other  bankers 
present,  to  draw  checks  on  the  banks,  as  an  ordinary  cus- 
tomer would  do,  for  his  various  disbursements,  and  to  allow 
these  checks  to  be  settled  at  the  Clearing  House.  "  Coin 
being  the  basis  of  credit,"  said  Mr.  Gallatin,  "it  was  only 
in  that  way  that  the  increased  financial  operations  of  the 
government  could  be  conducted ;  for  it  is  impossible  to 
maintain  the  superstructure  of  credit  when  the  basis  is  with- 
drawn, for.  in  destroying  the  basis  the  superstructure  is  also 
swept  away." 

Nevertheless,  Mr.  Chase  insisted  upon  carrying  away  the 
gold  and  scattering  it  through  the  country  by  means  of  the 
sub-treasuries  and  the  disbursing  officers.  The  amount  so 
scattered  was  one  hundred  and  seventy  million  dollars,  and 

it  cost  a  good  deal  to  cart  it  around.  The 
Forced  Snspen-  result  was  that  the  banks  suspended  specie 
Payments.  payments  on  the  28th  of  December,  1861. 

The  reason  assigned  by  Mr.  Chase  for  this 
fatal  act  was  a  desire  on  his  part  to  pay  the  public  creditors 
in  a  better  kind  of  money  than  they  were  willing  to  accept.1 

1  See  his  letter  to  Trowbridge  in  Warden's  Life  of  Chase,  page  387  : 
"  The  banks  had  constantly  urged  me  to  forego  the  issue  of  United 
States  notes  and  draw  directly  upon  them  for  the  sums  subscribed  and 
placed  on  their  books  to  the  credit  of  the  government.  '  In  what 
funds  will  my  drafts  be  paid?'  I  asked.  'We,  in  New  York,  are  en- 


THE  GREENBACKS.  151 

Was  this  suspension  of  specie  payments  necessary  ?     That 

it  was  not  necessary  at  the   beginning,   but  was  directly 

caused  by  Mr.  Chase,  in  the  manner  described, 

Necessary11  ^       is  nOt  °Pen  tO  disPute-      A  state  of  war  is  not 
more  inconsistent  with  specie  payments  than 

a  state  of  peace.  In  the  War  of  1812,  the  country  was  in 
greater  straits,  and  with  comparatively  smaller  resources, 
yet  specie  payments  were  maintained  till  within  a  few  months 
of  the  end.  In  New  England  at  that  time  there  was  no 
suspension  at  all.  In  the  great  Civil  War  of  England, 
specie  payments  were  not  suspended.  During  the  long 
Napoleonic  wars  there  was  no  suspension  in  France.  Yet 
some  people  talk  as  though  there  had  never  been  a  war  from 
the  siege  of  Troy  till  now,  without  the  use  of  depreciated 
paper,  whereas  this  is  only  a  modern .  device  of  slovenly 
financiers. 

At  the  beginning  of  the  war  the  amount  of  gold  in  the 
country  was  unusually  large.  If  it  had  been  left  in  the 
banks,  it  would  have  served  the  same  purpose  during  the 
war  as  before.  Business  transactions  are  no  greater  in 
amount  in  war  than  in  peace,  although  some- 
No  More  Gold  what  different  in  kind.  No  more  gold  would 
Needed  in  War 
than  in  Peace.  have  been  needed  if  it  had  been  used  for  its 

proper  purpose  of  bank  clearings,  i.e.,  as  a 
touchstone  of  the  paper  currency.  The  banks  ought  to  have 
made  it  a  condition  of  their  loan  that  Mr.  Chase  should  draw 

tirely  willing  to    pay   in  coin,'  was  the  reply.     '  But  how  will  it  be  in 
Boston  ?    How  in  Philadelphia  ?    How,  if  you  in  New  York  give  a  draft- 
holder  a  check  on  Cincinnati  or  St.  Louis,  will  the  check 
Reasons  ^e  Pa^  ^ '     '  *n  wnatever  funds  the  holder  of  the  draft 

or  check  is  willing  to  receive.'  'That  is  to  say,'  I 
answered,  '  in  coin,  if  the  holder  insists  on  coin,  and  the  bank  is  able 
and  willing  to  pay  it,  but  in  bank  notes  if  he  will  consent  to  receive 
bank  notes.  I  cannot  consent  to  this,  gentlemen.'1 "  To  call  this  perilous 
nonsense  would  be  to  describe  it  in  very  moderate  terms. 


152  REPRESENTATIVE  MONEY. 

checks  for  his  disbursements  to  be  settled  at  the  Clearing 
House  in  the  usual  way.  They  were  the  masters  of  the 
situation.  If  they  had  insisted  he  would  have  had  no  option 
but  to  yield.  Upon  this  point  Mr.  George  S.  Coe,  one  of 
the  most  prominent  men  in  the  negotiation,  says : 

"  In  the  light  which  has  since  been  shed  upon  the  act  of 

Congress  referred  to  (suspending  the  sub-treasury  act)  it  is 

evident  that  undue  weight  was  given  to  the  views  of  the 

Secretary,    and    that   the    banks   would   have 

conferred  an  incalculable  benefit  upon  the 
opinions. 

country  had  they  adhered  inflexibly  to  their  own 
opinions.  But  the  pressure  of  startling  events  required  prompt 
decision  and  the  well  known  intelligence  and  patriotism  of  the 
Secretary  gave  to  his  judgment  overwhelming  power."  l 

The  Committee  of  Ways  and  Means  on  the  yth  of  January, 
1862,  by  a  majority  of  one  vote,  agreed  to  report  a  legal 

tender  bill  proposed  by  Elbridge  G.  Spaulding 
Legal  Tender  of  Buffalo  Mr  Spaulding  was  a  successful 

banker,  and  he  had  an  ardent  supporter  in 
Samuel  Hooper,  a  successful  merchant  of  Boston,  and  both 
had  the  cooperation  of  Thaddeus  Stevens  of  Pennsylvania, 
the  chairman  of  the  committee  and  leader  of  the  House. 
Although  these  three  men  had  the  prestige  of  business 
experience  and  party-leadership,  they  were  not  able  to  gain 
the  assent  of  the  committee  to  the  bill,  but  finally  one  of 
the  dissenting  members  (Stratton  of  New  Jersey)  voted  that 
the  bill  might  be  brought  before  the  house  without  com- 
mitting himself  to  support  it.  This  action  produced  a  great 
commotion  in  the  world  of  finance. 

A  delegation  of  bankers  from  New  York,  Boston  and 
Philadelphia  came  to  Washington  to  remonstrate  against  it. 
A  meeting  was  held  at  the  office  of  the  Secretary  of  the 

1  Letter  of  George  S.  Coe  dated  October  8th,  1875,  published  in 
Spaulding's  History.  Appendix,  p.  89. 


THE  GREENBACKS.  153 

Treasury  on  the  nth  of  January  at  which  these  gentlemen 
and  the  members  of  the  financial  committees  of  the  House 
and  Senate  were  present.     Mr.  Gallatin,  in  be- 
^a^  °^  ^e  bankers,  presented  a  plan  of  na- 
tional finance  which  would,  in  the  opinion  of 
those  gentlemen,  procure  the  means  for  carrying  on  the  war 
without  recourse  to  legal  tender  notes.    One  of  the  proposals 
was  to  "  issue  six  per  cent  twenty-year  bonds,  to  be  negoti- 
ated by  the  Secretary  of  the  Treasury,  and  without  any  limi- 
tation as  to  the  price  he  may  obtain  for  them  in  the  market." 
Mr.  Spaulding  took  ground  at  once  against  this  plan.     He 
tells  us  that  he  "objected  to  any  and  every  form  of  'shin- 
ning ' 1  by  government  through  Wall  or  State 

Mr.  spauiding      Street  to  begin  with  ;  objected  to  the  knocking 
objects  to  _ 

"Shinning."        down  of  government  stocks  to  seventy-five  or 

sixty  cents  on  the  dollar,  the  inevitable  result 
of  throwing  a  new  and  large  loan  on  the  market,  without 
limitation  as  to  price" 

In  order  to  avoid  selling  government  stocks  at  75  or  60 
cents  on  the  dollar  in  an  honest  way  Mr.  Spaulding  initiated 
a  policy  which  ended  in  selling  those  stocks  at  40  cents  on 
the  dollar  in  a  roundabout  way,  and  cheating  creditors, 
soldiers  and  laboring  men  out  of  more  than  half  their  dues 
in  an  incidental  way.  This  state  of  facts  he  mournfully 
acknowledges  in  his  book,  and  he  seeks  to  put  the  blame  on 
Mr.  Chase  for  too  much  inflation  of  the  currency.2  But  the 
man  who  opens  the  floodgates  has  no  right  to  complain  of 
the  inundation. 

1  Shinning  is  a  phrase  applied  to  a  borrower  whose  credit  is  poor, 
and  who  has  to  walk  a  long  distance  to  raise  money. 

2 "He  (Chase)  left  the  office  with  twice  as  much  inflating  paper  out- 
standing as  ought  ever  to  have  been  issued  and  with  the  promised 
dollar  printed  on  the  face  of  the  greenback  worth  only  35  to  40  cents  in 
gold."  Introduction  to  second  edition  Spaulding's  Financial  History 
of  the  War,  p.  n. 


154  REPRESENTATIVE  MONEY. 

Although  Mr.  Chase  in  his  annual  report,  December,  1861, 

distinctly  rejected  the  idea  of  legal  tender  notes  (which  was 

already  in  the  air),  on  account  of  "  the  immeasurable  evils 

of  dishonored  public  faith  and  national  bankruptcy,"  yet  on 

the  22d  of  January  following  he  wrote  to  Mr. 

Mr.  Chase  as-        Spaulding  •  a    qualified    approval    of    his   bill. 
sents  to  the  Le-     JT     ,  -  f 

gal  Tender  Bill.  1 ne  letter  was  not  satisfactory  to  all  the  mem- 
bers of  the  committee.  Consequently  a  reso- 
lution was  adopted  asking  his  opinion  as  to  the  propriety 
and  necessity  of  the  immediate  passage  of  the  bill  by  Con- 
gress. An  answer  was  returned  on  the  2Qth.  Much  un- 
necessary verbiage  was  employed  to  convey  the  Secretary's 
assent  to  the  legal  tender  clause,  but  he  gave  his  assent  and 
added  certain  reasons  for  it  which  had  not  been  advanced 
by  anybody  else.  He  said  that  some  people  gave  a  cordial 
support  to  the  government  by  taking  its  notes  at  par  while 
others  did  not  —  referring  to  a  previous  issue  of  notes  which 
were  not  legal  tender.  "  Such  discriminations "  he  said, 
"  should,  if  possible,  be  prevented,  and  the  provision  making 
the  notes  a  legal  tender,  in  a  great  measure  at  least,  prevents 
it  by  putting  all  citizens  in  this  respect  on  the  same  level, 
both  of  rights  and  duties."  This  was  very  plausible.  It 
appealed  powerfully  to  the  spirit  of  patriotism.  Whether 
Mr.  Chase  was  the  victim  of  his  own  phrases  or  not  we  are 
unable  to  determine.  The  duties  of  the  citizen  are  to  sub- 
/  mit  to  the  laws  of  conscription  and  of  taxation,  and  his 
rights  are  to  be  exempt  from  impressment  and  confiscation. 
If  others  enter  the  army  voluntarily  or  give  their  money  to 
the  government  outright,  those  acts  are  over  and  above 
duties.  They  rise  to  the  category  of  merits. 

The  bill  passed  the  House,  February  6,  1862,  by  93  ta 
59.    The  legal  tender  clause  narrowly  escaped 
defeat  in  the  Senate.     On  Mr.  Collamer's  mo- 
tion to  strike  it  out  the  yeas  were  17,   and  the  nays  22. 


THE  GREENBACKS.  155 

Two  amendments  of  importance  were  added  to  the  bill  in 
the  Senate  :  one  making  the  interest  on  the  government's 
obligations  payable  in  coin ;  the  other  giving  the  Secretary 
of  the  Treasury  authority  to  sell  bonds  bearing  6  per  cent 
interest  at  any  time,  at  the  market  value  thereof,  for  notes 
or  coin. 

Mr.  Stevens  used  all  his  powers  of  invective  and  his  great 
personal  influence  to  defeat  the  coin-interest  amendment  — 
the  most  valuable  feature  of  the  bill.    Failing  in  that,  he  put 
the   House  to  the   severest  possible  test  by 

Senate  Amend-  offerinpr  an  additional  amendment  that  the 
ments. 

army  and  navy  and  the  contractors  furnishing 

supplies  to  the  government  should  also  be  paid  in  coin. 
This  amendment  was  rejected,  after  which  the  Senate's  coin 
amendment  was  agreed  to,  Mr.  Spaulding  voting  in  the 
negative. 

The  Senate  amendment  authorizing  the  Secretary  to  sell 
bonds  at  market  value  was  agreed  to.  This  clause  was  at 
first  intended  to  enable  the  Secretary  to  obtain  gold  at  some 
price  to  pay  the  interest  on  the  bonds.  In  the  Conference 
Committee  of  the  two  houses  an  additional  plan  was  devised 
for  this  end,  by  making  duties  on  imports  payable  in  coin. 
Mr.  Stevens  afterwards  claimed  the  credit  of  this  suggestion, 
but  his  motive  was  to  increase  the  duties  on  imports  by  way 
of  protection  to  manufacturers,  not  to  get  coin  for  the 
Government.  For  gold  he  had  intense  scorn. 

The  bill  became  a  law  on  the  25th  of  February,  1862.     It 

provided   for   the    issue    of   $150,000,000    of 

Second  issue.        notes.     On  the  yth  of  June  Mr.  Chase  asked 

for  $150,000,000  more  notes.     A  bill  for  this 

purpose  was  passed  with  very  little  opposition. 

On  the  6th  of  March,  Mr.  Stevens  introduced  a  bill  to 
authorize  the  Secretary  of  the  Treasury  to  dispose  of  any 
bonds  or  notes  authorized  by  law,  for  coin,  on  such  terms 


156  REPRESENTATIVE  MONEY. 

as  he  should  deem  most  advantageous  to  the  public  interest. 
As  this  law  turned  up  unexpectedly  the  present  year,  and 
was  made  the  basis  of  what  is  called  the  "syndicate  trans- 
action," it  is  an  object  of  interest.  After  the  legal  tender 
act  was  passed  it  was  remembered  that  $60,000,000  of  de- 
mand notes  were  outstanding,  which  were  re- 
chase  A?t?tl  ceivable  for  customs  duties.  If  duties  should 
be  paid  exclusively  in  these  notes,  some  con- 
siderable time  must  elapse  before  any  coin  would  come  in  to 
meet  the  interest  payments.  Mr.  Stevens  said  that  it  was 
impossible  to  sell  bonds  "  at  the  market  value  "  and  that  the 
Secretary  of  the  Treasury  had  sent  down  this  bill  and 
wanted  to  have  it  passed  at  once.  He  concurred  in  the 
necessity  of  it  since  the  coin  amendment  had  been  adopted 
by  Congress,  although  that  amendment  was  against  his 
judgment.  The  bill  was  passed  by  the  House  on  the  follow- 
ing day  and  by  the  Senate  March  nth,  without  a  division. 
In  the  Senate  it  was  amended  so  as  to  read  as  follows : 

"  The  Secretary  of  the  Treasury  may  purchase  coin  with 
any  bonds  or  notes  of  the  United  States  authorized  by  law, 
at  such  rates  and  upon  such  terms  as  he  may  deem  most 
advantageous  to  the  public  interest." 

In  the  Revision  of  the  Statutes,  which  was  completed  in 
1874,  this  clause  was  wisely  retained  among  the  provisions 
of  law  "general  and  permanent  in  their  nature,"  for,  so  long 
as  the  Treasury  is  compelled  to  maintain  the  ultimate  gold 
reserve  of  the  country,  its  power  to  obtain  gold  ought  to  be 
unrestricted. 

When  Congress  assembled  in  December,  1862,  it  found 

that  the  most  sacred  obligation  of  the  goyern- 

Third  Issue,          ment  —  the  pay  of  the  army  and  navy  —  had 

not  been  met,  and  that  great  distress  existed 

among  the  families  of  soldiers  in  consequence.     Mr.  Gurley, 

of  Ohio,  in  the  House  (January   15,    1863)   drew  a  most 


THE  GREENBACKS. 


157 


arrowing  picture  of  the  suffering  in  consequence  of  this 
default.  The  amount  of  pay  overdue  was  fifty-nine  million 
dollars. 

It  is  not  possible  to  acquit  Mr.  Chase  of  responsibility  for 
is  default.  The  House  passed  a  resolution  asking  why  he 
had  allowed  the  pay  of  the  army  to  fall  into  arrears.  He 
had  power  under  the  law  to  sell  6  per  cent  bonds  at  their 
market  value  for  greenbacks  or  coin.  Why  had  he  not  done 
so  ?  His  answer  was  in  these  words  : 

"  The  Secretary,  solicitous  to  regulate  his  action  by  the 
spirit  as  well  as  the  letter  of  the  legislation  of  Congress,  did 
not  consider  himself  at  liberty  to  make  sales  of  the  5-20 
bonds  below  their  market  value  ;  and  sales  except  below 
were  impracticable." 

Only  an  astute  lawyer  could  have  conceived  such  a  reason 
for  not  selling  bonds  and  paying  the  troops.  What  Mr. 
Chase  meant  was  that  the  quoted  value  of  6 
per  cent  bonds  on  a  particular  day  —  the  3d 
of  January,  1863,  for  example  —  was  98  in 
currency.  But  if  the  secretary  should  offer  any  large  lot, 
the  price  would  fall  below  98.  In  other  words  there  was  no 
market  value  for  bonds,  although  there  was  a  market  value 
for  every  other  merchantable  thing  under  the  sun.  There 
was  much  feeling  against  Mr.  Chase  among  congressmen 
on  account  of  this  interpretation  of  the  law  which  they  had 
passed  to  meet  every  financial  emergency. 

The  Secretary's  scruples  on  this  subject  led  to  the  third 

batch  of  legal  tender  notes,  $100,000,000,  authorized  by  a 

joint  resolution  dated  January  13,  1863,  "for  the  immediate 

payment  of  the  army  and  navy  of  the  United 

Depreciation.        States."     The  whole  amount  now  authorized 

was  $400,000,000.     The  price  of  gold  at  this 

time  was  142  ;  at  the  end  of  the  month  it  was  159.     Mr. 

Spaulding  was  surprised,  at  this  juncture,  to  find  that  there 


Queer  Reason 
for  it. 


158  REPRESENTATIVE  MONEY, 

was  a  great  scarcity  of  currency.  This  he  attributed,  not  to 
the  advance  in  prices  which  had  absorbed  the  additions  to 
the  circulating  medium,  but  to  the  operations  of  the  army 
and  navy.  He  did  not  explain  how  the  operations  of  a  mil- 
lion men  fighting  and  destroying  property  should  call  for 
more  currency  than  the  same  number  engaged  in  peaceful 
occupations  at  home. 

Two  other  kinds  of  legal  tender  notes  were  issued  during 
the  war.  They  were  called  treasury  notes,  the  former  ones 
being  called  United  States  notes,  or  popularly  greenbacks. 
The  treasury  notes  bore  interest,  some  at  5 

and  some  at  6  Per  cent'  and  they  had  a  definite 
period   of   payment.     The    5    per  cents  had 

interest-coupons  attached  to  them.  Accordingly  they  were 
hoarded  until  an  interest  payment  was  due  and  then  they 
entered  into  and  became  a  part  of  the  circulating  medium 
until  the  accrued  interest  made  it  worth  while  for  investors 
to  hoard  them  again.  This  feature  of  alternate  expansion 
and  contraction  was  very  embarrassing.  Fortunately  they 
had  only  a  short  time  to  run. 

The  last  device  in  legal  tender  was  the  least  harmful  of 

all.     It  consisted  of  compound-interest  notes.     These  were 

payable  three  years  from  date  with  interest  at  6  per  cent 

compounded  semi-annually,  the  interest  being  payable  with 

the  principal  at  maturity  and  not  otherwise. 

SterertNotes        On  the  back  °f  each  note  was  a  Printed  state~ 
ment  showing  its  value  at  the  end  of  each  six 

months.  The  ten-dollar  note,  which  was  the  smallest  de- 
nomination issued,  was  worth  $i  1.94  at  maturity.  The  notes 
were  legal  tender  for  their  face  value  only.  $226,000,000 
were  issued  on  this  plan.  It  is  impossible  to  say  to  what 
extent  they  became  part  of  the  circulating  medium.  A  ten- 
dollar  note  at  the  end  of  six  months  would  be  worth  thirty 
cents  more  than  its  face  or  legal  tender  value.  Every  holder 


THE  GREENBACKS.  159 

would  have  an  interest  and  a  daily  increasing  interest  to 
keep  it,  and  thus  redundancy  in  the  circulation  would  be 
held  in  check. 

During  the  controversies  that  have  raged  since  the  pas- 
sage of  the  legal  tender  act  it  has  been  contended  by  some 
people  that  all  the  legal  tender  notes,  including  those  which 
bore  interest,  all  the  certificates  of  indebtedness,  and  every 
sort  of  government  obligation  which  had  only  a  short  time 
to  run,  and  especially  those  which  could  be 

Amount  of  the      used  as  bank   reserves,   whether   they   were 

Circulation  Un- 

known.  actually  so  used  or  not,  should  be  counted  as 

part  of  the  circulating  medium  of  that  time  — 
the  aim  being  to  show  that  we  had  a  much  larger  per  capita 
circulation  then  than  we  have  now.     Obviously  there  are  no 
data  for  such  an  argument,  since  we  do  not  know  how  much 
of  these  various  things  was  really  in  circulation. 

An  important  change  was  made  by  the  act  of  March  3, 
1863,  in  the  character  of  the  old  legal  tender  notes.  By  the 
terms  of  their  issue,  they  were  convertible  into  6  per  cent 
gold-interest  bonds  at  par,  and  these  words  were  printed  on 
the  back  of  each  note.  Mr.  Chase  desired  that  this  privilege 
should  be  taken  away  so  that  he  might  reduce  the  rate  of 
interest  on  future  bond  issues.  Congress  reluctantly  yielded 
to  his  request,  fixing  a  period  a  few  months  distant  (July  i, 

1863),  when  the  right  of  conversion  should 
Blonder  cease.  This  was  an  inexcusable  breach  of 

contract,  and  a  shocking  blunder  to  boot,  for 
it  had  the  effect  of  preventing  the  early  resumption  of  specie 
payments.  Whenever  the  6  per  cent  bonds  were  above  par, 
the  notes  would  be  converted  into  them  and  be  retired.1 
This  operation  being  perfectly  natural,  being  part  of  a  con- 
tract, and  coinciding  with  a  popular  feeling  at  the  close  of 

1  These  bonds  were  above  par  in  currency  at  the  beginning  of  1864 
and  always  thereafter. 


160  REPRESENTATIVE  MONEY. 

the  war  favorable  to  specie  resumption,  would  have  certainly 
worked  out  that  result  within  a  brief  period.  This  feeling 
was  expressed  by  a  vote  of  144  to  6  in  the  House  on  the 
1 8th  of  December,  1865,  in  favor  of  contraction  of  the  cur- 
rency with  a  view  to  early  resumption. 

In  June,  1864,  Congress  enacted  that  the  whole  amount 
of  greenbacks  issued  or  to  be  issued  should  never  exceed 
four  hundred  and  fifty  million  dollars,  the  last  fifty  millions 
being  for  a  temporary  purpose.  When  the  war  came  to  an 
end  and  the  army  was  paid  off  and  disbanded  the  amount 
remained  fixed  at  four  hundred  millions.  Sec- 
taSrreSred"  retai7  McCulloch  in  1865  recommended  that 
the  greenbacks  be  gradually  retired  by  can- 
celing a  certain  proportion  of  those  received  for  taxes,  and 
Congress  passed  a  law  authorizing  such  retirement  at  the 
rate  of  four  millions  per  month.  This  was  done  until  the 
amount  was  reduced  to  three  hundred  and  fifty-six  millions, 
when  Congress  repealed  the  law. 

Secretary  Chase  resigned  his  office  June  30,  1864,  and 
was  succeeded  by  Wm.  Pitt  Fessenden.  His  last  financial 
feat  was  the  preparation  of  a  bill,  which  he  induced  Con- 
gress to  pass,  to  "  prohibit  certain  sales  of  gold 
and  foreign  exchange."  l  It  prohibited  sales 
of  gold  unless  the  person  selling  it  had  it  in 
his  actual  possession  and  delivered  it  to  the  buyer  the  same 
day.  It  prohibited  the  purchase  or  sale  of  foreign  exchange 
to  be  delivered  more  than  ten  days  subsequently.  It  also 
prohibited  loans  of  coin  or  bullion  to  be  repaid  in  green- 
backs, and  loans  of  greenbacks  to  be  repaid  in  coin  or  bul- 
lion. It  provided  also  that  no  purchases  or  sales  of  gold 
coin  or  bullion  or  of  foreign  exchange  should  be  made  ex- 
cept at  the  ordinary  place  of  business  of  the  seller  or  pur- 
chaser occupied  by  him  individually.  The  object  of  this 

1  Shucker's  Life  of  Chase,  p.  359. 


THE  GREENBACKS.  161 

clause  was  to  shut  up  the  Gold  Room,  where  most  of  this 
trading  was  done.  Violation  of  the  law  was  punishable  by 
fine  or  imprisonment  or  both,  the  smallest  fine  being  one 
thousand  dollars.  The  idea  of  Mr.  Chase  and  of  the  Con- 
gressmen who  voted  for  the  bill  was  that  the  Gold  Room 
brokers  caused  the  price  of  gold  to  advance,  whereas  they 
merely  recorded  the  price,  whatever  it  might  be.  They 
imagined  that  they  could  stop  the  advance  by  an  act  of 
Congress.  Mr.  Chase  was  firmly  of  that  opinion.  Three 
days  after  the  passage  of  the  law  he  wrote  to  Horace 
Greeley  :  "The  price  of  gold  must  and  shall  come  down,  or 
I'll  quit  and  let  somebody  else  try."  * 

This  fatuous  measure  became  a  law  June  17,  1864.     It 

remained  on  the  statute  book  only  two  weeks.     On  the  day 

it  passed  gold  was  quoted  at  198.     The  next 

its  Repeal.  day  it  was  208,  the  next  230,  and  at  the  end 

of  the  month  250.     At  no  time  before  had 

there  been  so  rapid  an  advance.     Congress  repealed  the  act, 

in  a  shamefaced  way,  without  debate,  on  the  2d  of  July. 

Was  the  legal  tender  act  necessary  ?     Mr.  Spaulding  says 

that  it  was,  but  that  means  merely  that  he  did  not  know  any 

other  way.     Other  people  did.    All  those  who  voted  against 

the  act  in  Senate  and  House  were  committed 

iof  WeTcess£^Ct  to    the    bdief    that   there    was    another   waY- 
That  way  was  taxation  and  loans.     We  are 

not  left  in  any  doubt  as  to  what  might  have  been  done  with 
taxation  and  loans.  In  the  latter  part  of  1863  Congress 
discovered  that  the  issuing  of  greenbacks  must  be  stopped 
and  the  policy  of  heroic  taxation  adopted.  Laws  were 
passed  which  yielded  in  a  single  year  (1866)  a  clear  revenue 
of  $558,032,620,  the  gold  value  of  which  was  70  cents  per 
dollar  or  $390,622,434.  The  total  expenditures  of  the 
government  for  the  fiscal  year  1862  were  $474,671,819,  the 

1  See  New  York  Daily  Tribune,  January  20,  1895. 


162  REPRESENTATIVE  MONEY. 

gold  value  of  which  at  90  cents  per  dollar  was  $427,285,637, 
being  only  $37,000,000  larger  than  the  tax  collections  of 
1866  at  their  gold  value.  The  tax-paying  power  of  the 
country  was  greater  in  1862  than  in  1866,  because  it  had 
not  been  subjected  to  the  drain  of  four  years  of  war. 

It  has  been  said  that  the  people  would  not  have  submitted 
at  the  beginning  of  the  war  to  the  taxation  that  they  bore 
at  the  end  of  it.  This  is  a  mistake.  If  Congress  had  en- 
acted the  taxes  the  people  could  not  have 
escaPed  Paying  them-  Moreover,  the  popular 
feeling  was  all  the  time  in  favor  of  heavier 
taxes  than  Congress  imposed,  and  the  really  heavy  taxation 
was  borne  without  murmuring  several  years  after  the  war 
was  ended. 

It  may  be  said  that  it  was  impossible  to  get  the  taxing 
machinery  at  work  soon  enough  to  meet  the  emergency  of 
1862.  That  is  true,  but  it  does  not  follow  that  legal  tender 
notes  were  necessary.  If  the  tax  laws  of  1864  had  been  en- 
acted and  set  in  motion  in  1862  the  government's  credit 
would  have  been  such  that  it  could  have  borrowed  all  that 
it  needed,  at  better  rates  than  it  actually  paid,  and  the 
government  would  have  bought  its  supplies  on  the  gold 
basis  throughout  the  war,  whereas  it  paid  an 
avera£e  premium  of  50  per  cent  on  all  its 
purchases  from  the  beginning  of  1862  till 
May,  1865.  The  total  expenditure  of  the  four  years  was 
$3,352,380,410,  of  which  it  is  safe  to  say  that  $2,500,000,000 
consisted  of  purchases  in  the  open  market  where  the  green- 
back dollar  procured  only  66  cents'  worth  of  property.  In 
other  words  we  obligated  ourselves  for  $2,500,000,000 
and  got  $1,630,000,000  in  actual  value.  The  difference, 
$870,000,000,  is  the  unnecessary  cost  to  the  taxpayers, 
caused  by  the  use  of  a  depreciated  currency.1 

1  See  Public  Debts,  by  H.  C.  Adams,  p.  131. 


THE  GREENBACKS.  163 

Mr.  Spaulding  (on  page  5  of  his  book)  calls  the  legal  ten- 
der act  a  "  a  forced  loan."  This  is  much  too  flattering.  It 
had  none  of  the  characteristics  of  a  loan.  Even  a  forced 
loan  implies  an  accounting  and  repayment. 
Loan1"1™  Nothing  of  this  kind  was  done  or  attempted. 

When  the  government  resorted  to  legal  tender 
it  said  to  A,  B,  and  C  :  "  We  will  take  your  property  now 
and  eventually  we  will  pay  somebody  for  it." 

Senator  Fessenden  opposed  the  legal  tender  clause. 
One  of  his  reasons  was  that  "the  loss  would  fall  most 
heavily  on  the  poor."  All  tricks  of  legerdemain  with  the 
currency  bear  most  heavily  on  the  poor.  Take  a  con- 
crete case.  The  government  wanted  guns.  It  paid  for 
them  with  legal  tender  notes.  The  manufacturer  must 
pay  them  to  his  workmen,  who  must  buy  their  supplies 
of  all  kinds  in  a  rising  market.  The  cost  of  living 
followed  the  gold  premium  closely  throughout  the  war. 
Wages  lagged  behind.  Hence  labor,  voiceless  and  pa- 
triotic, paid  a  disproportionate  share  of  this  so-called  "  forced 
loan." 

This  fact  has  been  reduced  very  recently  to  mathematical 
terms  by  the  joint  labors  of  Col.  Carroll  D.  W7right,  U.  S. 
Commissioner  of  Labor,  Professor  R.  P.  Falkner  and  Pro- 
fessor F.  W.  Taussig,  the  Labor  Bureau  collecting  the 
statistics  for  the  Senate  Committee  on  Finance,  Prof.  Falk- 
ner digesting  and  arranging  them  and  Prof. 
Effect  on  Wages.  Taussig  putting  them  in  graphical  form.  u  It 
will  be  seen,"  says  the  latter,  "that  money 
wages  responded  with  unmistakable  slowness  to  the  in- 
flating influences  of  the  Civil  War.  In  1865,  when  prices 
stood  at  217  as  compared  with  100  in  1860,  wages  had 
only  touched  143.  The  course  of  events  at  this  time 
shows  the  truth  of  the  common  statement  that  in  times  of 
inflation  wages  rise  less  quickly  than  prices,  and  that  the 


164 


REPRESENTATIVE  MONEY. 


period  of  transition  is  one  of  hardship  to  the  wage-receiving 
class."  1 


PROFESSOR  TAUSSIG'S  CHART  SHOWING  THE  COURSE  OF  WAGES  AND 
PRICES  OF  COMMODITIES. 


210 
200 
190 

180 

I70 

160 
150 
140 
130 

120 

no 

100 

90 
80 

j 

1 

1 
I 

180 

1 

\ 
I 

United  States  Prices  
"           "      Wages— 

1 
/ 

\ 

— 

160 

1 

n 

^4 

A 

\ 

^_^ 

_^ 

*jo 

140 

/      \ 

VJ 

/ 

I 

/ 

^\ 

1JU 

/ 

\ 

no 

"\ 

/'" 

—   - 

\ 

\_^ 

•""\  . 

S-J 

2 

\ 

/^ 

^^_ 

x^ 

V 

\  ,-•  —  •>• 



""1840   '45      '50      '55       '60 

'65         '70        '75          '80        '85         '90 

The  value  of  such  a  treatise  as  this,  if  it  have  any,  must 
consist  in  pointing  out  financial  errors,  in  order  that  they 
may  be  avoided  hereafter,  not  in  praising  or  dispraising 
public  men.  It  is  the  prevailing  opinion  both  North  and 
South,  that  because  the  Union  triumphed  over  the  Con- 
federacy the  finances  of  the  former  must  have  been  well 
managed.  This  is  a  non  sequitur  and  is  con- 

m'aS-fer  **  *      trary  to  the  f acts<      Secretarv  Chase  was  not 

a  financier.     By  financier  is  meant  one  skilled 

in  the  art  of  obtaining  the  means  required  by  the  govern- 


1  Paper  read  before   the   International   Statistical  Institute  at  Chi- 
cago, 1893. 


THE  GREENBACKS.  165 

ment  from  the  people  in  the  manner  least  hurtful  to 
them,  and  to  their  posterity.  There  was  no  reason  why 
Mr.  Chase  should  have  been  considered  skilled  in  this  art. 
To  do  him  justice  he  did  not  consider  himself  skilled  in  it. 
He  did  not  want  the  office.  After  he  was  appointed,  he 
tried  to  decline.  He  was  not  chosen  for  any  supposed 
familiarity  with  finance.  He  was  placed  at  the  head  of  the 
Treasury  because  he  commanded  the  confidence  of  the 
country  in  a  large  general  way. 

Criticism  is  disarmed,  however,  as  well  as  made  super- 
fluous, by  the  frankness  of  his  acknowledgment  of  his  errors. 
In  his  dissenting  opinion  in  the  Legal  Tender  Cases,  referring 
to  his  letter  of  January  29,  1862,  to  the  Committee  of  Ways 
and  Means,  approving  the  legal  tender  bill,  he  says:  "Ex- 
amination and  reflection  have  satisfied  him 

Cthe  Chief  Justice]  that  this  opinion  was 
erroneous,  and  he  does  not  hesitate  to  declare 
it."  In  the  same  paper  he  says  that  if  the  greenbacks  were 
convertible  into  5  per  cent  bonds  they  would  be  at  par. 
"  In  other  words  specie  payments  would  be  resumed."  He 
argues  strongly  that  the  legal  tender  quality  did  not  add 
anything  to  the  value  or  usefulness  of  the  greenbacks,  and 
he  gives  them  a  parting  kick  in  these  words : 

,"  The  legal  tender  quality  was  only  valuable  for  purposes 
of  dishonesty.  Every  honest  purpose  was  answered  as  well 
or  better  without  it." 

Mr.  Chase's  opinion  as  Chief  Justice  in  the  case  of  Hep- 
burn vs.  Griswold  is  a  noble  and  powerful  appeal  for  honesty 
in  men  and  governments.1 

1  The  various  decisions  of  the  Supreme  Court  on  legal  tender  are 
summarized  on  pages  231-234. 


166  REPRESENTATIVE  MONEY. 

.CHAPTER  V. 
CONFEDERATE  CURRENCY. 

THE  treasury  notes  of  the  Southern  Confederacy  were  not 
legal  tender.  There  is  no  evidence  that  their  value  was 
lessened  or  their  circulation  retarded  by  reason 
°^  ^^  ^act-  ^  public  opinion  compels  people 
to  take  paper  as  the  equivalent  of  gold  a  law 
of  tender  may  be  dispensed  with.  This  was  the  case  in  the 
South.  The  Confederate  notes,  therefore,  must  be  classed 
as  fiat  money. 

Secretary  Memminger  tells  us  that  during  the  whole  of 
the  year  1861  "the  government  exchanged  its  own  notes  for 
bills  on  England  at  par,  with  which  it  paid  for  all  its  arms 
and  munitions  of  war."  l  We  are  informed  by  the  same 
authority  that  the  Confederate  Treasury,  at 
First  Year.  the  beginning,  did  not  have  sufficient  money 
to  pay  for  the  Secretary's  writing  desk,  and 
that  there  was  not  in  the  whole  Confederacy  a  sheet  of  paper 
fit  for  the  printing  of  treasury  notes.  The  first  supplies  of 
bank-note  paper  and  lithographic  materials  ordered  from 
England  were  captured  on  the  ocean.  It  would  have  been 
better  for  the  Confederacy  if  all  other  efforts  to  obtain  these 
fatal  instruments  had  likewise  failed.  In  default  of  materials 
the  Treasury  borrowed  bank  notes  to  be  reimbursed  with 
treasury  notes  as  soon  as  the  latter  could  be  prepared.  The 
bank-note  circulation  of  the  Confederacy  at  the  beginning 
was  estimated  at  $85,500,000,  and  the  banks  were  in  high 
credit. 

The  first  issue  of  treasury  notes  was  made  in,  pursuance 
of  an  act  dated  March  9,  1861.  This  was  for  one  million 
dollars,  afterwards  raised  to  two  millions.  The  notes  were 

1  Capers's  Life  of  Memminger,  p.  350. 


CONFEDERATE  CURRENCY.  167 

in  denominations  of  not  less  than  $50.  They  were  payable 
one  year  from  date,  bore  interest  at  3.65  per  cent  and  were 
payable  to  order.  They  were  an  ordinary  government  loan 
and  not  currency. 

Of  a  different  sort  was  the  next  issue,  authorized  May  16, 
1861.     This  was  for  $20,000,000,  not  bearing  interest,  pay- 
able two  years   after  date  in  specie.     They 

were  fundable  into  8  Per  cent  bonds>  and  the 

bonds  were  exchangeable  for  the  notes  at  the 
holder's  option.  They  were  also  receivable  for  all  public 
dues  except  the  export  duty  on  cotton.  Secretary  Mem- 
minger  had  recommended  that  the  notes  of  denominations 
of  $20  and  more  should  bear  interest  not  exceeding  8  per 
cent,  so  that  they  might  be  hoarded  and  not  enter  into  gen- 
eral circulation,  but  this  recommendation  was  not  adopted 
by  the  Confederate  Congress.  Mr.  Memminger  had,  from 
the  beginning,  a  clear  conception  of  the  dangers  of  an  in- 
flated currency  and  he  always  used  treasury  notes  with 
reluctance.  Like  Mr.  Chase  he  was  always  protesting  against 
them  yet  always  using  them.  The  plea  of  necessity  was 
equally  available  on  both  sides  of  the  line,  but  had  more 
plausibility  in  the  South. 

Two  acts  were  passed  in  1861  and  1862  for  an  aggregate 
sum  of  $150,000,000,  which  was  soon  dissipated.  On  the 
23d  of  September,  1862,  the  Confederate  Congress  authorized 

a  new  issue  limited  only  by  the  amount  of  its 
Rapidly  Issued,  own  appropriations.  At  the  end  of  the  year 

the  amount  outstanding  was  $290,000,000. 
The  separate  States  had  also  issued  treasury  notes.  So  too 
had  many  counties,  cities,  towns,  railroad  and  manufacturing 
companies  and  private  individuals,  but  none  were  legal 
tender. 

The  quotations  of  gold,  foreign  exchange  and  commodities 
were  now  three  times  the  normal  prices,  and  the  Secretary 


168  REPRESENTATIVE  MONEY. 

addressed  himself  to  the  task  of  withdrawing  two-thirds  of 

the  currency  in  order  to  restore  the  value  of  the  remainder. 

A    tentative  step  had  been  taken  to   hasten 

Stio^061*6  the  funding  of  the  notes  by  providing  that 
the  privilege  of  funding  in  8  per  cent  bonds 
should  cease  on  the  22d  of  April,  1863,  after  which  only  7 
per  cent  should  be  allowed.  Some  relief  might  have  been 
obtained  in  this  way  but  for  the  fresh  issues  that  were  pour- 
ing out  all  the  time. 

Inducements  to  fund  the  currency  having  largely  failed, 
the  Secretary  now  proposed  "  to  supply  the  deficiency  by  a 
small  portion  of  constraint."  He  recommended  that  a 
period  be  fixed  after  which  the  issues  of 
treasurv  notes  bearing  date  prior  to  December 
i,  1862,  should  cease  to  be  current.  The 
notes  were  not  to  be  repudiated  but  branded.  They  would 
still  be  a  part  of  the  debt  of  the  Confederacy,  and  receiv- 
able for  taxes. 

Another  plan  of  Mr.  Memminger  for  retiring  the  redundant 
currency  was  that  the  separate  States  of  the  Confederacy 
should  guarantee  a  loan  for  that  purpose  —  as  though  the 
parts  could  be  greater  than  the  whole.  Virginia,  Alabama 
and  South  Carolina  had  already  agreed  to  do  this  on  certain 
varying  conditions.  Mr.  Memminger  thought 

Gmirant*  ^^  that  with  Such  a  §uaranty  he  could  sel1  bonds 
at  6  per  cent  interest  instead  of  8  and  realize 
a  large  premium  besides.  Probably  it  was  his  idea  that  a 
loan  guaranteed  in  this  manner  would  not  be  exposed  to  the 
hazard  of  a  future  disruption,  and  hence  would  command  a 
higher  credit  than  one  bottomed,  as  the  Confederacy  was, 
on  the  right  of  the  States  to  secede.  This  plan  failed  by- 
reason  of  the  refusal  of  some  of  the  States  to 'agree  to  it. 

Early  in  1863  the  Confederate  Cotton  Loan  of  $15,000,000 
was  negotiated  in  Europe  by  Erlanger  &  Co,      Mr.  Capers's 


CONFEDERATE  CURRENCY.  169 

biography  of  Memminger  contains  a  letter,  dated  July  4, 
1892,  from  Mr.  James  C.  Gibbes  of  Charleston,  who  tells  a 
rather  startling  story.  Mr.  Gibbes  was  sent 
to  Europe  in  charge  of  the.  bonds.  He  and 
Mr.  James  Spence  undertook  to  negotiate 
them.  They  found  Erlanger  &  Co.,  of  Paris  and  Frankfort, 
willing  to  undertake  the  business,  but  Mr.  Erlanger  wanted 
a  much  larger  amount.  Mr.  Gibbes  had  no  authority  to 
supply  a  larger  amount.  Erlanger  decided  to  go  to  Rich- 
mond and  present  his  views  in  favor  of  a  larger  loan,  which 
he  said  he  could  easily  dispose  of.  He  did  go  to  Richmond 
and  he  returned.  So  much  of  the  narrative  is  within  Mr. 
Gibbes's  personal  knowledge.  The  remainder  he  derives 
from  Erlanger. 

Erlanger  told  him  that  Memminger  refused  to  accept  more 
than  the  $15,000,000,  declaring  that  that  sum  "would  cover 
all  that  was  then  actually  needed  "  ;  that  he  (Erlanger)  ad- 
vertised the  $15.000,000  loan  and  received  bids  on  the  first 
of  March,  1863,  for  $525,000,000,  at  prices  averaging  97 
cents  to  the  dollar  !  This  was  a  larger  sum 

than  either  the  Federal  or  the    Confederate 
Government  had  been  able  to  borrow  up  to 
this  time.     It  was  more  than  half  as  large  as  the  French 
war   indemnity,  which   required    two    years    and   a  half  to 
place.     The  tale  is  fit  only  for  the  pages  of  Monte  Cristo. 

The  next  law  (March  23,  1863)  cut  off  the  right  of  fund- 
ing old  treasury  notes  in  any  kind  of  bonds  after  August  i. 
Notes  were  now  coming  out  at  a  terrible  rate,  $50,000,000 

per   month    being    authorized    by    this    act. 
Galoping  down     Thege   were  fundable   intQ   ?    per  cent  bonds 

until    August    i,    and    afterward    into   4    per 

cents.     The  rate  of  interest  was  of  no  consequence  now, 

since  it  was  payable  in  paper  which  was  rapidly  depreciating. 

Mr.  Memminger's  report  in  December  following  was  very 


1 70  REPRESENTA  TI VE  MONE  Y. 

despondent.     He  said  that  the  currency  was  now  five  times 

its    proper   volume.     The   sum  of    $391,000,000  had  been 

added  since  the  first  of  January,  bringing  the  total  amount 

to  more  than  $600,000,000.     The   quotation 

1^1863  Gold  20        f()r   goM    was    2Q    f()r    r-      The    Secretary    CQn. 

sidered  it  imperatively  necessary  to  reduce 
the  volume  to  $200,000,000.  To  do  this  would  require 
$400,000,000  to  be  derived  from  taxes  or  loans,  while  an 
equal  amount  would  be  required  to  carry  on  the  war.  The 
Confederate  finances  had  broken  down  by  reason  of  the 
blockade.  "The  specie  of  the  world,"  he  said,  "could  not 
flow  in  upon  us,  and,  when  ours  was  exhausted,  we  were 
compelled  to  pay  interest  on  our  bonds  in  treasury  notes. 
The  foundation  of  the  system  was  thus  lost.  Paper  money 
rested  on  other  paper,  and  as  both  accumulated  they  acted 
and  reacted  on  each  other,  until  both  have  been  reduced  to 
the  rate  at  which  they  now  stand." 

In  addition  to  his  recommendations  respecting  loans  and 
taxes  he  proposed  "  new  tenor "   notes  to  the  amount  of 

$200,000,000,  the  faith  of  the  government 
"New Tenor."  being  pledged  not  to  increase  said  issues; 

that  all  old  treasury  notes  not  funded  before 
the  first  of  April  should  cease  to  be  current  or  receivable 
for  public  dues,  but  should  remain  as  evidences  of  debt  pay- 
able by  the  Confederate  States  according  to  their  tenor  ; 
that  all  notes  not  funded  should  be  sent  to  the  Treasury  for 
registration  on  or  before  the  first  of  October  and  that  "  all 
notes  not  so  registered  within  the  said  time  shall  be  barred 
from  any  further  claims  on  the  government."  Mr.  Mem- 
minger  tried  in  vain  to  reconcile  this  plan  of  finance  with  the 
principles  of  good  faith,  and  ended  by  saying  :  "  No  contract, 
however  solemn,  can  require  national  ruin,  and  in  such  case 
the  maxim  must  prevail  that  the  public  safety  is  the  supreme 
law." 


CONFEDERATE  CURRENCY,  171 

February  17,  1864,  the  Confederate  Congress  passed  a 
law  to  carry  these  recommendations  into  effect  by  taxing  the 
notes  outstanding  after  a  certain  date  33^3  per  cent,  the 
remaining  663/3  to  be  fundable  till  January  i,  1865,  but  the 

holders  might,  at  their  option,  receive  new 
Partial  Repudia-  notes  at  the  rate  of  66^  centg  per  ^^  ex_ 

cept  for  the  $100  notes.  All  $100  notes  not 
funded  at  the  end  of  the  year  were  to  be  taxed  100  per  cent, 
/>.,  blotted  out.1  The  new  tenor  notes  were  to  be  payable 
two  years  after  peace. 

This  was  repudiation.  The  avenging  nemesis  followed 
the  new  notes.  Funding  went  on  rapidly,  but  the  prices  of 
commodities  continued  to  advance.  It  was  like  the  experi- 
ment with  new  tenor  continental  money.  There  are  many 
points  of  similarity  between  the  continental  and  the  Con- 
federate currency  schemes.  People  had  no  more  con- 
fidence in  the  new  notes  than  in  the  old  ones.  There  was 
no  reason  why  they  should  have.  All  the  forces  working  for 
depreciation  were  still  in  full  blast,  with  the  spectre  of  re- 
pudiation added.  Of  the  new  tenor  notes  $283,000,000 
were  outstanding  October  i,  1864,  and  the  gold  quotation 
was  26  for  i. 

Mr.  Memminger  had  recommended  that  the  old  notes, 
after  a  certain  time,  should  be  declared  not  current,  but  in 
fact  they  had  never  been  declared  current,  and  Mr.  Mem- 
minger had  protested  in  a  special  communication  to  Con- 
gress against  making  them  legal  tender.  The 

„""    Fate  of      notes  circulated  in  the  first  instance  because 
Old  Tenor. 

they  were  good  ;  that  is,  not  redundant.  After 
they  became  redundant  they  circulated  because  public 

1  In  1793  tne  French  Convention,  in  one  of  its  spasms  with  the  as- 
signats,  demonetized  558  millions,  of  higher  denominations  than  100 
livres,  on  the  pretext  that  only  aristocrats  could  hold  assignats  of  high 
denominations. 


172  REPRESENTATIVE  MONEY. 

opinion  backed  them  and  because  there  was  no  other  cur- 
rency. Mr.  Memminger  tried  afterwards  to  tell  what  he 
meant  by  declaring  the  notes  no  longer  current.  The  sub- 
stance of  his  explanation  was  that  a  brand  publicly  put  upon 
the  notes  by  the  legislative  power  would  render  them  uncur- 
rent  in  practice.  The  Confederate  Congress  found  means 
to  reach  the  same  end  without  using  the  brand. 

Mr.  Memminger  said  in  several  reports  that  it  was  impos- 
sible to  carry  on  a  modern  war  by  means  of  taxes  alone. 
This  was  a  mistake.  Every  country  pays  the  cost  of  a  war 
at  the  time  of  the  war.  The  Southern  Confederacy  presents 
an  easy  illustration  of  this  maxim,  because  it  was  for  the 
most  part  isolated,  having  little  communication  with  the 
.outer  world,  and  because  all  of  its  debts  were  obliterated  at 
the  end  of  the  war.  Obviously  somebody  paid 

the  cost     li  was  not  paid  by  foreigners  (ex- 
cept the  trifling  sum  of  $15,000,000  borrowed 

abroad),  nor  did  it  fall  from  the  moon.  There  being  nobody 
else  to  pay  it,  the  people  of  the  Confederacy  must  have  paid 
it,  and  must  have  paid  it  during  the  time  of  the  war  and  not 
a  moment  later.  To  levy  taxes  sufficient  to  pay  the  whole 
of  each  year's  expenses  within  the  year  would  not  have 
made  the  burden  any  greater  than  it  actually  was.  The 
Confederacy,  by  following  Mr.  Memmingers  conception 
that  taxes  to  pay  interest  on  loans  would  be  sufficient,  did 
not  get  rid  of  heavier  ones.  It  only  took  them  in  a  different 
way. 

If  every  country  pays  the  cost  of  a  war  at  the  time  of  the 
war,  it  may  be  asked  what  we  have  been  paying  for  since, 
and  what  the  national  debt  represents.  It 
rePresents  the  difference  or  overplus  that  some 
people  paid  more  than  others.  Similar  dif- 
ferences existed  among  the  Confederates,  but  they  were 
sponged  out  by  the  downfall  of  their  government. 


CONFEDERATE  CURRENCY.  173 

What  was  the  highest  amount  of  Confederate  notes  out- 
standing at  any  time  will  perhaps  never  be  known.     The 
amount  in  December,  1863,  is  stated  by  Pol- 

lard  at  $7OO>OOO>OO°-  In  l865»  after  the  war 
was  ended,  the  Legislature  of  North  Carolina 
adopted  a  "scale  of  depreciation,"  which  purports  to  show 
the  value  of  one  gold  dollar  in  Confederate  currency  for 
each  month  during  the  war.  The  first  quotations  are  those 
of  November  and  December,  1861,  viz.,  $1.10  and  I.I5.1 
During  1862  the  range  was  from  1.20102.50;  1863  from 
3.00  to  20.00;  1864  from  21.00  to  49.00;  in  April,  1865,  it 
was  100.00,  at  which  rate  the  Confederate  dollar  was  worth 
one  cent.  The  Life  of  Jefferson  Davis  by  his  wife  gives  a 
long  list  of  amazing  prices  paid  for  goods  of  all  kinds  in 
Richmond  during  the  war. 

The  South  did  not  escape  the  moral  consequences  of 
depreciated  paper,  which  are  alluded  to  in  Pollard's  History 
thus : 2 

"The  evils  of  the  expanded  currency  of  the  Confederacy 
were  not  only  financial.  They  were  also  moral.  The 
superabundance  of  paper  money  was  the  occasion  of  a  wild 
speculation,  which  corrupted  the  patriotism  of  the  country ; 
introduced  extravagance  and  licentiousness  in  private  life  ; 
bestowed  fortune  on  the  most  undeserving,  and  above  all 
bred  the  most  dangerous  discontents  in  the 
army.  As  long  as  there  was  a  spirit  of  mutual 
sacrifice  and  mutual  accommodation  in  the 
war  our  soldiers  were  content  and  cheerful.  But  when  they 

1  Yet  the  Richmond  Enq^i^rer  of  December  31,  1861,  says  that  run- 
ners were  traversing  the  country  buying  up  specie  at  30,  40  and  50  per 
cent  premium.     "The  present  price  of  specie,"  it  adds,  "will  be  here- 
after quoted  through  all  time  as  a  damning  stigma  upon  the  character 
of  Southern  merchants."     The  Enquirer  thought  that  the  speculation 
caused  the  premium,  whereas  the  premium  caused  the  speculation. 

2  Third  Year  of  the  War,  p.  182. 


174  REPRESENTATIVE  MONEY. 

had  to  compare  their  condition  —  the  hardships  of  the 
camp,  the  pittance  of  eleven  dollars  per  month  that  could 
scarcely  buy  a  pair  of  socks,  the  poverty  of  the  dear  ones 
left  behind  them  —  with  the  easy  and  riotous  wealth  of 
those  who  had  kept  out  of  the  army  merely  to  wring  money 
out  of  the  necessities  and  distress  of  the  country,  who  in 
snug  shops  in  Richmond  made  thousands  of  dollars  a  day,  it 
is  not  to  be  wondered  at  that  bitter  conclusions  should  have 
been  drawn  from  the  contrast  and  that  the  soldier  should 
have  given  his  bosom  to  the  bullets  with  less  alacrity  and 
zeal  when  he  reflected  that  his  martyrdom  was  to  protect  a 
large  class  of  men  grown  rich  on  his  necessities  and  that 
too  with  the  compliance  and  countenance  of  the  government 
he  defended." 


CHAPTER   VI. 

THE   GOLD   ROOM. 

WHEN  the  premium  on  gold  became  noticeable  in  January, 
1862,  the  business  of  buying  and  selling  it  began  naturally 
in  the  shops  of  those  Wall  Street  brokers  who  dealt  in  foreign 
coins.  These  brokers  had  gold  and  silver  on 
exhibition  in  their  windows.  People  who 
wanted  coin  went  there  to  buy  it.  Those  who 
wanted  to  sell  coin  for  greenbacks  naturally  went  there  also. 
Gradually  the  dealings  became  so  large  in  front  of  their 
offices  that  the  traders  blocked  the  sidewalks,  and  the  public 
authorities  were  obliged  to  give  special  orders  to  the  police 
to  keep  the  crowds  moving.  The  business  being  thus  inter- 
rupted, the  dealers  took  up  their  quarters  in  a  neighboring 
restaurant,  where  the  business  went  on  until  it  outgrew  its 
accommodations.  Then  the  need  of  a  Gold  Exchange  was 
recognized.  Thirty  or  forty  men  who  had  been  in  the  habit 


THE  GOLD  ROOM.  175 

of  meeting  in  the  restaurant  formed  a  loose  organization, 

hired  a  hall,  and  adopted  rules  by  which  any  respectable 

man  could  become  a  member  by  paying  $100 

organized  ****  Per  Year» to  defray  the  expenses.  This  was  in 
the  autumn  of  1 862 .  It  was  a  voluntary  organi- 
zation, existing  under  the  rule  of  honor.  Eventually  it  had 
450  members,  consisting  of  bankers,  brokers  and  merchants 
of  the  principal  cities  of  the  Union. 

At  first  the  business  was  carried  on  by  the  manual  de- 
livery of  gold  in  return  for  certified  bank  checks.  Then  the 
gold  must  needs  be  carried  through  the  streets  by  messen- 
gers, who  were  sometimes  knocked  down  and  robbed.  To 
facilitate  the  transactions  the  Treasury,  in  1865,  began  to 
issue  gold  certificates  of  deposit,  a  law  authorizing  the  same 
having  been  passed  two  years  earlier.  By  and  by  the  busi- 
ness became  so  large  that  it  could  not  be  carried  on  by 
manual  delivery  even  with  the  help  of  gold 
certificates.  Then  the  Gold  Exchange  Bank 
was  started  as  an  adjunct  to  the  Gold  Room. 
This  was  an  institution  incorporated  under  the  laws  of  New 
York  with  a  capital  of  one  million  dollars.  It  did  a  regular 
banking  business  with  its  own  capital,  and  it  acted  as  a 
clearing  house  for  the  Gold  Room  at  a  fixed  rate  of  compen- 
sation. 

The  method  of  clearing  was  as  follows :   Each  transaction 
was  noted  on  a  "ticket  of  advice"  signed  by  both  buyer  and 
seller.     All  the  tickets  were  passed  into  the  bank.     If  Mr. 
A.  had  bought  one  million  from  various  persons  at  various 
prices  and  had  sold  nine  hundred  and  ninety-nine  thousand, 
then  instead  of  receiving  from  and  paying  to 
Gold  clearings,     all  these  people  he  would  settle  only  with  the 
bank.     He  would  receive  at  the  close  of  the 
lay  one  thousand  dollars  in  gold  and  would  pay  whatever 
iuni  in  greenbacks  was  due  from  him  as  the  resultant  of  all 


176  REPRESENTATIVE  MONEY. 

his  transactions.  The  usual  daily  amount  of  such  clearings 
was  sixty  to  seventy  million  dollars,  counting  both  sales  and 
purchases. 

All  the  foreign  trade  of  the  country,  both  imports  and  ex- 
ports, was  regulated  by  the  daily  and  hourly  quotations  of 
the  Gold  Room.  This  trade  could  not  have  been  carried  on 
otherwise.  The  wholesale  prices  of  all  im- 
Portable  and  exportable  commodities  were 
regulated  by  the  quotations.  Retail  prices 
were  affected  at  longer  range.  That  is,  the  retail  dealers  were 
obliged  to  fix  their  prices  high  enough  to  cover  fluctuations 
and  to  save  themselves  from  loss.  The  consumer  was  not 
able  to  buy  at  the  lowest  price  that  the  law  of  competition 
would,  under  other  circumstances,  have  made.  Commod- 
ities not  of  an  exportable  or  importable  kind  were  affected 
in  less  degree  and  at  still  longer  range,  but  were  not  exempt 
from  the  influence.  In  short,  the  whole  trade  of  the  country, 
both  external  and  internal,  pivoted  on  the  Gold  Room. 
Gold  being  the  universal  liquidator  of  commerce,  it  was 
necessary  to  know  where  and  at  what  price  it  could  be  ob- 
tained in  any  desired  quantity.  The  Gold  Room  gave  the 
answer  to  this  question  daily  and  hourly,  and  was  accord- 
ingly indispensable. 

I  visited   this   institution   on   the   first   of 
Goi^Room?          December,    1866,    and   wrote    the    following 

description  of  it  the  same  day : 

"  In  a  little  courtyard  surrounded  by  four  walls  and  closed  in 
with  a  roof,  having  a  circuitous  passageway  from  Broad  Street, 
may  be  witnessed  at  any  hour  of  the  day  and  six  days  in  the 
week  a  scene  which  has  not  its  likeness  in  earth  or  heaven. 
I  consider  the  Gold  Room  the  greatest  curiosity  in  the  world 
to-day. 

"  Imagine  a  rat-pit  in  full  blast  with  twenty  or  thirty  men 
ranged  around  the  rat  tragedy,  each  with  a  canine  under  his 


THE  GOLD  ROOM.  177 

arm  all  yelling  and  howling  at  once,  and  you  have  as  good  a 

comparison   as  can  be  found  in  the  outside  world  of  the 

aspect  of  the  Gold  Room  as  it  strikes  the  be- 

jfSSSr* t0  holder  on  his  first  entrance-  The  furniture  of 
the  room  is  extremely  simple.  It  consists  of 
two  iron  railings  and  an  indicator.  The  first  railing  is 
a  circle  about  four  feet  high  and  ten  feet  in  diameter 
placed  exactly  in  the  center  of  the  room.  In  the  interior, 
which  represents  the  space  devoted  to  rat  killing  in  other 
establishments,  is  a  marble  Cupid  throwing  up  a  jet  of 
pure  Croton  water.  The  artistic  conception  is  not  appro- 
priate. Instead  of  a  Cupid  throwing  a  pearly  fountain 
into  the  air  there  should  have  been  a  hungry  Midas  turn- 
ing everything  to  gold  and  starving  to  death  from  inability 
to  eat  it. 

"The  other  railing  is  a  semicircle  twenty  or  thirty  feet 
from  the  central  one.  This  outer  rail  fences  off  the  'lame 
ducks'  and  'dead  beats/  men  who  have  once  been  famous 
at  the  rat-pit  but  have  since  been  cleaned  out.  Solvency  is 
the  first  essential  of  the  Gold  Room.  Nothing  bogus  is 
allowed  to  interfere  with  the  serious  business  in  hand. 
Nevertheless  these  lame  ducks  and  dead  beats  cannot  keep 
away  from  the  place.  Day  after  day  they 

Dea^Beats! and  come  and  range  themselves  along  this  iron 
grating  and  look  over  at  the  rat-pit  with  the 
strangest  expression  of  intelligent  vacancy  and  longing 
despair  that  can  be  found  out  of  purgatory.  They  seem  to 
be  a  part  of  the  furniture  of  the  room.  While  I  was 
there  I  did  not  see  one  of  them  move  or  speak,  and 
when  they  winked  it  was  with  much  the  same  spirit  that 
an  owl  at  midday  lowers  the  film  over  his  eye  and  lifts  it 
again. 

"The  indicator  which  is  the  third  piece  of  furniture  in  the 
room  (or  the  fourth  if  we  count  the  'dead  beats')  is  a  piece 


178  REPRESENTATIVE  MONEY. 

of  mechanism  to  show  the  changes  in  the  market.  It  is  some- 
thing like  an  old-fashioned  Dutch  clock  seven  or  eight  feet 
high,  with  an  open  space  at  the  top  disclosing  three  figures 
and  a  fraction,  as  141^,  at  which  the  market  stood  when  I 

entered.  The  figures  being  movable  a  slight 
The  Indicator.  manipulation  will  manifest  any  change  in  the 

market.  Connected  with  the  indicator  is  a 
plain  desk  with  a  book  on  it,  in  which  are  recorded  all 
the  movements  of  the  indicator  with  the  hour  and  minute  at 
which  each  change  takes  place.  The  floor  of  the  establish- 
ment is  a  pavement  with  circular  steps  or  terraces  rising 
from  the  centre  to  the  circumference.  '  Neat  but  not  gaudy ' 
is  the  general  aspect  of  the  premises.  Of  course  such  an 
institution  could  not  exist  without  a  telegraph  office.  Ac- 
cordingly we  find  one  communicating  with  the  Gold  Room 
by  a  row  of  windows  through  which  dispatches  are  con- 
stantly passing. 

"Having  given  the  external  appearance  of  the  concern  we 
now  come  to  business.  Three  things  are  in  demand,  lungs, 
note-books  and  pencils.  Wow-wow-wow,  yah-yah-yah  from 
twenty  or  thirty  throats  around  the  pit  all  at  once  and  kept 
going  from  morning  till  night,  from  Monday  till  Saturday,  is 
what  presents  itself  to  the  ear  of  the  beholder.  The  voices 

of  the  gentry  around  the  circle  are  for  the 
Voices  most  part  tenori  Wjtj1  now  ancj  tjien  a  faisetto 

and  a  basso.  I  shall  not  soon  forget  a  basso 
profondo  in  the  ring  who  drew  his  breath  at  regular  intervals 
and  announced  his  desires  with  a  seriousness  truly  remark- 
able. He  was  a  thick-set  man,  with  capacious  chest,  shaggy 
head,  keen  eyes  and  rusty  whiskers  which  curved  upward 
from  his  inferior  maxillary  bone  in  the  most  determined 
manner.  He  cocked  his  head  on  one  side,  thrust  his  chin  as 
far  over  the  railing  as  possible  and  made  himself  heard 
every  time.  He  put  in  his  B-flat  in  regular  cadences  like  the. 


THE  GOLD  ROOM.  179 

trombone  performer  in  a  mill-pond,  of  a  summer  evening, 
drowning  for  the  moment  all  the  fiddles  of  the  frog  com- 
munity. 

"Among  the  faces  constantly  swinging  around  the  circle 
there  is  a  marked  preponderance  of  Israelites,  but  they  do 
not  monopolize  the  business.  There  are  young  Yankees 
here  apparently  not  more  than  twenty-one  years  of  age,  with 
downy  cheeks  and  shrewd  eyes,  wow-wowing  and  yah-yahing 

at  each  other  across  the  railing  and  whisking 
Method  of  Trad-  their  pencijs  with  phonographic  speed.  Put- 

ting the  purchases  and  sales  together  they 
will  not  unfrequently  amount  to  one  hundred  million  dollars 
in  a  day.  In  a  few  cases  only  is  the  gold  actually  delivered. 
Balances  are  settled  with  gold  certificates.  But  they  are  not 
satisfied  with  this  slow-coach  method  of  doing  business. 
They  must  needs  have  a  Gold  Clearing  House  where  the 
whole  business  of  the  room  can  be  thrown  into  a  hopper  and 
the  differences  ground  out  at  one  turn  of  the  wheel.  This 
project  is  now  on  foot.  It  will  of  course  facilitate  business 
very  much. 

"  But  what  does  it  all  amount  to  ?  I  had  almost  said  that 
the  Gold  Room  regulates  all  the  prices  of  the  United  States. 
It  does  not  regulate  but  it  records  them.  The  Gold  Room 

is  itself  regulated  by  the  outside  world.  Each 
Record^f  Flue1-*  movement  of  the  indicator  is  the  resultant  of 
tuations  in  the  all  the  forces  at  work  in  America,  Europe, 
°f  Asia,  and  Australia  which  can  possibly  affect 


the  value  of  United  States  currency.  It  fol- 
lows that  the  operators  in  the  Gold  Room  should  be,  at  the 
same  time,  the  best  informed  and  the  most  intelligent  busi- 
ness men  in  the  country.  They  must  not  only  have  the  best 
and  latest  information,  but  they  must  be  able  to  determine 
at  once  what  is  the  economic  meaning  and  significance  of 
any  given  fact  which  may  come  to  their  knowledge.  They 


180  REPRESENTATIVE  MONEY. 

must  be  able  to  resolve  the  most  complicated  problems  in 
mental  arithmetic  without  a  moment's  hesitation.  If  the 
Secretary  of  the  Treasury  has  decided  upon  a  certain  meas- 
ure of  financial  policy,  or  the  President  a  certain  measure  of 
foreign  policy  ;  if  there  is  a  short  corn  crop  or  a  Fenian 
rebellion,  or  a  war  cloud  in  Europe,  or  a  heavy  immigration, 
or  a  great  oil  discovery,  or  a  change  of  the  tariff  or  anything 
else  which  can  affect  the  currency  or  the  public  credit  they 
must  be  able  to  melt  down  the  mass  and  weigh  the  product 
in  terms  of  standard  gold.  This  is  the  work  of  Omniscience. 
No  man  can  do  it.  Nor  can  the  whole  Gold  Room  do  it 
accurately  at  all  times.  Now  and  then  the 
prices  will  run  wildly  up  on  a  given  state 
of  facts  and  run  down  again  as  rapidly  when 
it  is  discovered  that  the  facts  are  not  producing  the  effect 
which  was  generally  expected  by  the  operators.  They  are 
pretty  cool  and  accurate  in  their  calculations,  but  the  atmos- 
phere of  the  Gold  Room  almost  inevitably  perverts  a  man's 
judgment  and  brings  him  to  grief  in  the  long  run.  A  few 
days  ago  word  came  that  President  Johnson  had  sent  a  dis- 
patch of  5,000  words  by  cable  to  Paris.  This  was  known  in 
the  Gold  Room  before  the  dispatch  had  left  the  Washington 
telegraph  office,  perhaps  before  it  had  left  the  State  Depart- 
ment. Great  was  the  pow-wow  in  the  Gold  Room.  Gold 
rose  from  140^  to  143^.  A  Western  merchant,  who  hap- 
pened to  be  there,  turned  the  matter  over  in  his  mind  and 
concluded  that  it  did  not  make  much  difference  what  kind 
of  a  dispatch  had  been  sent  to  Europe.  He  reasoned 
that  the  people  were  not  well  enough  pleased  with  Andrew 
Johnson  to  follow  him  into  a  foreign  war, 
An  Example.  even  if  that  were  the  purport  of  the  dispatch. 
He  called  a  broker  to  his  side  and  authorized 
him  to  operate  for  a  decline  within  three  days,  and  he 
pocketed  four  thousand  dollars  by  having  at  the  moment  a 


THE  GOLD  ROOM.  181 

grain  more  common  sense,  or  a  better  acquaintance  with  the 
temper  of  the  American  people,  than  the  habitue's  of  the 
Gold  Room. 

"  I  remarked  at  the  beginning  that  the  Gold  Room  is  a 
'great  curiosity  and  that  it  furnishes  a  remarkable  illustration 
of  the  capabilities  of  the  human  mind.  It  is 
a  ceaseless  jangle,  a  whirlpool  of  voices  ap- 
parently without  order,  without  umpire,  referee 
or  stakeholder.  Yet  as  it  spins  on,  millions  upon  millions 
are  bought  and  sold,  the  prices  of  all  goods,  wares,  mer- 
chandise, produce,  bonds,  stocks  and  property  generally 
throughout  the  country  are  marked  up  or  down  obediently 
to  the  indicator  of  the  Gold  Room.  How  these  men  can 
understand  each  other  and  avoid  making  mistakes  is  a 
mystery.  In  any  large  telegraph  office  in  the  country  you 
will  see  twenty  or  thirty  Morse  instruments  clicking  together. 
Each  operator  hears  and  understands  his  own  instrument 
even  though  he  be  ten  feet  from  it,  and  he  does  not  hear 
any  other.  I  have  often  paused  to  admire  the  scene  in  a 
large  telegraph  office  as  a  wonderful  example  of  the  perfect- 
ibility of  the  human  ear.  but  in  the  Gold  Room  one  must 
not  only  discern  separate  sounds  in  the  midst  of  dire  con- 
fusion and  record  them  accurately,  but  must  have  all  his 
wits  on  the  stretch  at  once  and  yet  preserve  a  perfect 
equilibrium  of  judgment. 

"  Now  and  then  the  noise  flags  and  almost  ceases.    While 
I  was  there  it  ceased  for  a  moment  entirely.     The  smokers 
placidly  puffed  their  blue  wreaths  upward  and  the  murmur 
of  the  little  fountain  became  audible.     In  ten  seconds  Bed- 
lam   had    broken    loose    again,    wilder   than 

The  Market  before.  'Market  excited,'  said  my  friend 
txcited. 

James  Boyd,  to  whose  politeness  I  was  in- 
debted for  an  introduction  to  the  room,  and  almost  immedi- 
ately the  indicator  rose  from  141^  to  141^.  The  idea 


182  REPRESENTATIVE  MONEY. 

that  these  twenty  or  thirty  men  were  the  market,  and  that 
when  they  exchanged  yells  a  trifle  more  vociferously  than 
usual  the  market  was  excited,  struck  me  as  so  droll  that  I 
laughed  heartily.  It  was  nevertheless  true.  These  men 
were  the  market  and  the  market  was  excited.  Some  spark 
of  information  had  just  come  from  some  quarter  of  the  globe 
which  warranted  the  belief  that  United  States  legal  tender 
notes  were  worth  a  small  fraction  less  than  they  were  ten 
seconds  before.  The  Gold  Room  is  as  sensitive  to  news  as 
the  thermo-electric  pile  is  to  heat. 

"There  are  two  classes  of  operators  in  the  Gold  Room  — 
commission  men  and  speculators.  The  former  buy  and  sell 
for  others.  With  them  it  is  'heads  I  win,  tails  you  lose.' 
Their  commission  is  a  certainty.  If  they  can  resist  the 
temptation  to  do  a  little  business  on  their  private  account 
they  make  money.  The  speculators,  as  a  rule,  make  none. 
Rich  to-day,  poor  to-morrow,  is  the  rule  with  them.  Those 
who  make  money  cannot  get  away.  When  a  man  makes  a 
million  in  the  Gold  Room,  it  is  as  though  he  had  swallowed 
a  quart  of  sea-water  to  quench  his  thirst.  He  must  have 
more.  So  he  stays  and  loses  it.  If  he  loses 
Gambiin  ""  more  than  he  has  and  cannot  pay  his  differ- 
ences, he  must  take  his  place  at  the  outer 
railing.  Even  then  he  cannot  drag  himself  away  from  the 
place.  The  evil  genius  of  gambling  has  possession  of  him. 
It  holds  him  fast.  '  Yonder,'  said  my  companion,  '  is  a 
young  man  who  might  have  gone  away  with  two  million 
dollars.  He  was  worth  it  once.  He  is  now  among  the 
"  dead  beats,"  as  poor  as  any  of  them.  They  have  all  been 
rich  in  their  time.'  I  looked  over  to  the  dead-beat  apart- 
ment, and  saw  a  youth  whose  cast  of  countenance  might 
have  inspired  Tennyson  to  write  the  '  Lotus  Eaters.'  Such 
mild  and  melancholy  eyes,  such  an  expression  of  fixed  un- 
certainty and  motionless  unrest  it  would  be  hard  to  find 


THE  GOLD  ROOM.  183 

save  in  the  Gold  Room  or  in  a  lunatic  asylum.  Of  the 
'  dead  beats/  generally  it  might  be  said  : 

'  In  the  afternoon  they  came  unto  a  land 
In  which  it  seemed  always  afternoon. 
All  round  the  coast  the  languid  air  did  swoon, 
Breathing  like  one  that  hath  a  weary  dream.' 

"  Applying  to  the  Gold  Room  the  rule  of  averages  it 
stands  to  reason  that  nobody  should  make  money  in  the 
long  run.  Buying  and  selling  gold  produces  no  wealth. 
The  miner  in  California  brings  gold  into  the  world.  He 
adds  to  the  stock  of  a  useful  commodity.  But  the  broker 

in  the  Gold  Room  adds  nothing  to  it.    Out  of 
The  Real  Trad-  **, 

ing  was  not  in      nothing  nothing  comes.     But  these  men  are 

Gold,  but  in  not  really  buying  and  selling  gold.  Gold  is 
Greenbacks.  ,  /  f. 

the  only  stable  thing  going.     It  is  tn  equilibria, 

or  so  nearly  thus  that  its  fluctuations  take  place  only  through 
long  periods  of  years.  The  men  of  the  Gold  Room  are 
really  buying  and  selling  United  States  currency.  Is  any- 
thing made,  in  the  aggregate,  out  of  this  ?  Certainly  not. 
I  speak  of  the  transactions  as  a  whole  ;  of  course,  somebody 
gains  and  somebody  loses  in  nearly  every  transaction. 
Sometimes  an  operator  will  have  an  extraordinary  run  of 
luck,  which  induces  him  to  believe  that  he  knows  everything. 
When  he  reaches  this  point  he  is  lost.  The  idea  of  one's 
infallibility  is  fatal  in  the  Gold  Room. 

"To  say  that  the  Gold  Room  is  not  useful  would  be  alto- 
gether wrong.     It  is  not  only  useful,  but  indispensable.     I 
should  not  wish  any  friend  of  mine  to  do  much  business  in 
it,  but  it  must  be  recognized  as  a  necessity  of 

w^s  a°N^ssity.   the  times<     The  foreign  trade  of  the  country 

could  not  be  carried  on  without  it.    Its  method 

of  doing  business  was  never  invented  by  anybody.     Men 

slid  into  it,  just  as  men  slid  into  the  practice  of  using  gold 


184  REPRESENTATIVE  MONEY. 

and  silver  for  money.  It  has  been  found  that  the  work  can 
be  done  more  economically  and  expeditiously  by  the  rat-pit 
mode  than  by  any  other.  If  it  could  be  done  any  faster  or 
cheaper  by  the  operators  standing  on  their  heads  they  would 
probably  do  so." 

During  seventeen  years  the  business  of  the  country  was 
regulated  by  the  quotations  of  the  Gold  Room  and  was  ex- 
posed to  the   raids  of  gold  gamblers.     The 
Gambling  Raids,   most  disastrous  of  these  was  the  one  known 
as  the  Black  Friday  conspiracy,  of  September, 
1869.     The  export  trade  of  the  country  at  that  time  neces- 
sitated the  selling  of  gold  in  advance  of  its  delivery.     A 
buyer  of  wheat  or  cotton  for  export  would  make  his  bargain 
according  to  the  price  of  gold  to-day,  but  he  would  not  get 
his  returns  from  abroad  for  two  or  four  weeks.     If  the  price 
of  gold  should  fall  meanwhile  he  would  be  a  loser.     So  he 
sells  the  gold  which  he  expects  to  receive  at  the  same  time 
that  he  buys  the  produce.     How  can  he  sell  what  he  does 
not  yet  have?     He  gives  an  order  to  a  broker 
Sellers  *  *n  tne  Gold  Room  and  meanwhile  puts  up  a 

small  margin  as  a  guarantee  against  loss.  He 
knows  that  he  will  have  the  gold  to  deliver  as  soon  as  the 
produce  is  shipped.  Therefore  he  cannot  lose  anything,  even 
if  gold  advances  in  price.  Nor  can  the  broker  lose,  since 
he  is  protected  by  the  margin,  and  has  the  right  to  call  for 
more  margin  if  need  be.  If  the  advance  in  gold  is  very 
great  and  rapid,  there  may  be  difficulty  in  putting  up  margin. 
Banks  and  money-lenders  may  be  frightened  and  refuse  to 
make  advances,  and  failures  may  result  in  consequence,  but 
barring  these  exceptional  cases,  the  exporter  and  his  broker 
are  both  protected  in  the  manner  described. 

Mr.  Jay  Gould,  who  was  at  that  time  President  of  the 
Erie  Railway,  and  a  daring  speculator,  conceived  the  idea  of 
buying  all  the  gold  in  the  market  and  compelling  the  "  short" 


THE  GOLD  ROOM.  185 

sellers  to  buy  of  him,  when  their  contracts  should  mature. 
He  organized  a  clique  of  brokers,  speculators  and  Tammany 
Hall  politicians,  who  succeeded  by  various  devices  and  by 
enormous  purchases  in  carrying  the  price  up  from  133 
to  162  in  about  twenty  days,  the  greater  part  of  the  rise 
being  in  two  days,  September  22-24.  The 
Black  Friday.  24th  was  always  afterwards  known  as  Black 
Friday.  As  the  game  proceeded  a  great  many 
fluttering  moths,  who  were  innocent  of  any  connection  with 
foreign  trade,  were  drawn  into  the  flame,  and  had  their 
wings  burned  off.  About  250  persons  and  firms  were  caught 
"short"  of  gold,  who  had  no  way  of  meeting  their  contracts 
except  by  buying  it  of  Gould  and  his  party. 

The  game  was  not  without  danger  to  the  latter,  since 
everything  depended  on  their  ability  to  hold  the  price  up, 
while  the  victims  were  settling.  This  was 
accomplished  by  putting  a  broker  in  the  Gold 
Room  to  buy  all  that  was  offered.  This 
broker  was  really  a  man  of  straw.  He  bought  $60,000,000 
of  gold  for  the  Gould  clique  and  then  they  repudiated  him. 
Two  Tammany  judges  (who  were  soon  afterwards  kicked 
out  of  office),  issued  orders  putting  the  Gold  Exchange  Bank 
in  the  hands  of  a  receiver,  and  enjoining  the  creditors  of  the 
Gould  party  from  prosecuting  claims  against  them,  except  in 
those  courts.  These  proceedings  had  much  the  same  effect 
as  the  sudden  appearance  of  a  tiger  in  a 
sheepfold.  Those  who  were  not  in  the  mon- 
ster's fangs  were  paralyzed  with  terror.  Gould's 
debtors  had  handed  their  pocket-books  to  him  while  the  man 
of  straw  was  holding  the  price  of  gold  up  by  fictitious  pur- 
chases. His  creditors  were  now  tied  hand  and  foot  by  in- 
junctions and  intimidated  by  the  orders  of  the  Tammany 
judges.  Moreover,  they  had  no  means  of  knowing  whether 
Gould  was  solvent  or  insolvent  at  that  time.  Consequently, 


186  REPRESENTATIVE  MONEY. 

they  were  in  a  mood  to  settle  for  much  less  than  was  due  to 
them.  What  the  profits  of  the  conspirators  were  has  never 
been  divulged.  The  transactions  were  on  a  fabulous  scale, 
the  gold  clearings  of  Thursday,  the  23d,  being  $325,000,000, 
while  those  of  Black  Friday  would  have  reached  $500,000,000, 
if  they  had  not  been  cut  short  by  the  Tammany  judges. 
Meanwhile,  the  trade  of  the  country  was  convulsed.  The 
consequences  were  thus  described  by  a  Committee  of  Con- 
gress, of  which  General  Garfield  was  Chairman  : 

"  Hundreds  of  firms  engaged  in  legitimate  business  were 
wholly  ruined  or  seriously  crippled.  Importers  of  foreign 
goods  were  for  many  days  at  the  mercy  of  gamblers  and 
suffered  heavy  losses.  For  many  weeks  the 
business  of  the  whole  country  was  paralyzed, 
a  vast  volume  of  currency  was  drawn  from  the 
great  channels  of  industry  and  held  in  the  grasp  of  the  con- 
spirators. The  foundations  of  business  morality  were  rudely 
shaken,  and  the  numerous  defalcations  that  shortly  followed 
are  clearly  traceable  to  the  mad  spirit  engendered  by  specu- 
lation." 

Black  Friday  and  its  evil  consequences  were  due  to  the 
existence  of  a  bad  currency  and  a  fluctuating  standard  of 
value.  The  Gold  Room  was  at  that  time  a  necessity. 
Business  could  not  be  carried  on  without  it, 
but  it;  offered  temptations  and  facilities  for 
gambling  which  could  not  be  resisted;  and  this 
gambling  was  more  calamitous  than  any  other,  because  the 
prices  of  all  commodities  and  securities  were  affected  by  it. 
It  was  only  an  exaggerated  and  glaring  illustration  of  the 
evils  of  an  unstable  currency.  Ab  uno  disce  omnes. 

When  the  war  came  to  an  end  in  May,  1865,  the  price  of 
gold  sank  to  130,  at  which  rate  greenbacks  were  worth  77 
cents  per  dollar.  It  had  been  as  high  as  285  in  July,  1864, 
greenbacks  being  then  worth  36  cents.  The  difference  be- 


I  THE  GOLD  ROOM.  187 

:ween  these  quotations  may  be  taken  to  represent  changes 
n  the  public  credit,  or  various  vicissitudes  and  states  of 
.nind,  dependent  upon  the  war,  wholly  apart  from  the  re- 
dundancy of  the  circulation,  since  the  currency  was  no 
greater  in  volume  at  the  one  date  than  at  the  other. 

In  California  the  greenbacks  never  acquired  a  foothold 
until  after  specie  payments  were  resumed.  This  State  had  no 
banks  of  issue  and  was  entirely  unfamiliar  with  paper  money. 
It  was  not  without  a  severe  struggle,  how- 
California  Ad-  ever,  that  the  gold  standard  was  maintained, 
heres  to  the 
Gold  standard.  ^ne  claims  of  loyalty  were  imported  into  the 

controversy,  and  it  was  stoutly  insisted  by  the 
greenback  party  that  unwillingness  to  use  legal  tender  notes 
was  akin  to  treason.  Their  opponents  replied  that  they 
were  entirely  willing  to  use  the  notes  at  their  actual  value, 
but  not  at  a  higher  value.  They  contended  that,  except  for 
past  debts,  greenbacks  could  not  be  used  at  anything  above 
their  actual  value,  because  the  prices  of  commodities  would 
fluctuate  in  some  near  proportion  to  the  fluctuations  of  the 
currency.  If  taken  for  more  than  their  actual  value  by 
ignorant  persons,  such  persons  would  be  cheated.  In  regard 
to  past  debts  they  said  that  it  would  be  unjust  to  pay  less 
value  than  the  parties  had  agreed  for.1 

There  is  an  advantage  in  studying  the  events  in  California 
at  this  time  because  what  happened  there  in  plain  sight  and 
hearing  took  place  on  an  immensely  larger  scale  elsewhere, 
but  was,  for  the  most  part,  drowned  by  the  clamor  of  war. 

There  were  no  railways  to  the  Pacific  Coast  at  that  time, 
hence  several  months  elapsed  before  any  commercial  effects 
were  produced  by  the  legal  tender  act.  On  the  iyth  of 
September,  1862,  a  firm  in  San  Francisco  published  a  letter 
in  the  Alfa  California  saying  that  they  had  been  compelled 


* 


I 


1  See  article  "  Legal  Tender  Notes  in  California,"  in  the  Quarterly 
Journal  of  Economics,  October,  1892,  by  Professor  Bernard  Moses. 


J 


188  REPRESENTATIVE  MONEY. 

to  receive  many  thousands  of  dollars  in  legal  tender  notes 
for  goods  which  they  had  bought  for  gold  and  had  sold  on 

credit  at  gold  prices.  They  had  tendered  the 
ra^ments^  notes  to  tneir  employees  in  payment  of  wages, 

but  the  latter  had  refused  to  receive  them, 
saying  that  the  boarding  houses,  the  butchers  and  the 
grocers  would  not  take  them  at  par.  "  For  ourselves,"  said 
the  firm,  "we  wish  to  maintain  the  government,  but  we 
would  like  the  burden  to  fall  equally  on  all  classes." 

March  5,  1863,  a  victim  of  the  legal  tender  law  wrote  to 
the  Evening  Bulletin  of  San  Francisco  that  he  had  lent 
$10,000  in  gold  coin  four  years  previously  to  a  man  in 
Sacramento  whose  name  he  gave.  The  promissory  note  was 
lodged  at  the  banking  house  of  D.  O.  Mills  &  Co.  for  collec- 
tion. The  borrower  came  to  the  bank  and  tendered  $10,000 

in  greenbacks  as  full  payment.  Greenbacks 
Severe  Losses.  were  then  worth  68  cents  on  the  dollar. 

D.  O.  Mills  &  Co.  refused  to  receive  the 
tendered  greenbacks  without  the  consent  of  the  owner  of  the 
note,  and  denounced  the  conduct  of  the  debtor  as  unfair  in 
the  extreme.  After  a  protracted  dispute  the  creditor  ac- 
cepted the  $10,000  in  greenbacks  and  $1,000  in  gold,  rather 
than  enter  upon  a  doubtful  lawsuit.  His  loss  then  was 
$2,200,  but  as  he  kept  the  notes  a  few  months,  it  became 


Business  was  thrown  into  confusion  by  the  contrariety  of 

practice  in  different  parts  of  the  State  with  reference  to 

greenbacks.     Attempts  were  made  to    introduce  the    gold 

clause  into  promissory  notes,  invoices,  and  bills  of  sale,  and 

these  were  partially  successful,  but  what  could 

be  done  with  accounts  current,  with  telegraphic 

orders   and  with   retail    trade    conducted    on 

the  credit  system  ?     On  the  8th  of  November,   1862,  the 

merchants  of  San  Francisco  entered  into  a  written  agree- 


THE  GOLD  ROOM.  189 


ment  not  to  receive  or  pay  legal  tender  notes  except  at  their 
market  value  in  gold.  Country  merchants  were  invited  to 
sign  it  also.  If  anybody  should  refuse  to  sign  or  should 
violate  the  agreement  the  others  would  decline  to  have  any 
business  transactions  with  him.  This  plan  could  not  be 
made  comprehensive  enough  to  meet  the  emergency. 

Presently  a  case  got  into  court  where   a  citizen  had  ten- 
dered greenbacks  for  State  taxes,  and  the  collector  had  re- 
fused to  receive  them.     The  Supreme  Court 

Greenbacks  not     of   the    State    decided   that   taxes   were    not 

Legal  Tender  for    ..  , 

Taxes,  debts,    and  hence  that  the  legal  tender  law 

did  not  apply  to  them.  This  view  was  even- 
tually sustained  by  the  Supreme  Court  of  the  United  States. 
The  decision  of  the  State  court  had  a  great  influence  on 
local  public  opinion.  It  strengthened  the  hands  of  the  anti- 
greenback  men.  About  this  time  the  Federal  Government 
was  collecting  the  direct  tax,  which  had  been  levied  on  the 
States  at  the  beginning  of  the  war.  The  treasurer  of  Cali- 
fornia collected  it  from  the  citizens  in  coin  and  paid  the 
Federal  Government  in  its  own  legal  tender  notes,  saving 
the  difference  to  the  State  treasury.  "  This  transaction," 
says  Prof.  Moses,  "  although  the  treasury  saved  by  it  the 
sum  of  $24,260,  was  almost  universally  condemned." 

In  October,  1862,  the  Board  of  Supervisors  of  San  Fran- 
cisco adopted  a  resolution  to  pay  the  interest  on  city  and 
county  bonds  in  gold  coin  and  instructed  their  financial  agent 
in  New  York  to  advertise  to  that  effect.  This  action  likewise 
tended  to  strengthen  the  position  of  the  anti-greenbackers. 
February  12,  1863,  resolutions  were  introduced  in  the 

Legislature  asking  the  general  government  to 
oUnteVest  ****  excePt  California  from  the  operations  of  the 

legal  tender  law.  The  resolutions  were  re- 
jected because  it  was  evident  that  such  a  petition  could  not 
be  granted.  The  mover  of  them  mentioned  one  fact  of 


190  REPRESENTATIVE  MONEY. 

importance.  He  said  that  the  rate  of  interest  had  risen 
to  double  the  customary  rate  because  lenders  were  fearful 
that  no  form  of  contract  could  prevent  the  payment  of 
greenbacks  where  gold  had  been  promised. 

This  feeling  had  taken  a  powerful  hold  on  the  public 
mind.  An  agitation  was  started  by  the  Daily  Herald  for  a 
law  to  enforce  the  payment  of  contracts  in  whatever  kind  of 
money  the  parties  might  agree  for.  The  Legislature  took  up 
the  subject  in  earnest,  and  in  April,  1863,  passed  a  law  to 
this  end,  not  mentioning  gold,  greenbacks,  or  any  particular 
kind  of  money  by  name.  This  was  known  as 
the  SPecific  Contract  Law.  It  provided 
merely  that  in  an  action  on  a  contract,  or 
obligation,  in  writing,  payable  in  a  specified  kind  of  money 
or  currency  the  judgment  should  be  payable  in  such  money 
or  currency.  The  parties  might  stipulate  for  English  sover- 
eigns, or  Spanish  doubloons,  or  notes  of  the  Bank  of  France, 
as  well  as  for  American  eagles,  or  greenbacks  ;  the  law 
would  enforce  the  contracts  in  all  cases.  The  act  was 
passed  upon  by  the  Supreme  Court  of  the  State  the  same 
year  and  pronounced  constitutional.  It  was  also  held  to  be 
applicable  to  contracts  made  before  its  passage.  Both 
these  doctrines  were  subsequently  affirmed  by 

Sustained  by  the   tne  Supreme  Court  of  the  United  States,  in 

Supreme  Court  _. 

of  the  u.  S.  terms  which  implied  that  the  Specific  Contract 

Law  was  superfluous.  In  other  words,  specific 
contracts  were  enforceable  without  it.  The  greenback  party 
made  an  effort  in  the  following  year  to  repeal  this  law,  but 
the  Chamber  of  Commerce  of  San  Francisco  issued  a  strong 
address  to  the  people  against  repeal,  and  the  address  re- 
ceived the  unanimous  endorsement  of  the  workingmen's 
organizations  of  the  city.  The  repealing  bill  was  tabled  in 
the  Senate  by  24  to  1 6,  and  that  was  the  last  of  it.  From  this 
time  onward  California  enjoyed  a  stable  standard  of  value. 


AFTER  THE   WAR.  191 

CHAPTER   VII. 
AFTER   THE   WAR. 

THE  money  circulating  among  the  people  is  a  powerful 
educator.     It  teaches  either  truth  or  falsehood.     Sometimes 
the   results  of  its  false  teachings  are  merely 
whimsical ;    more    often   they   are   disastrous. 
Philip  Gilbert  Hamerton  tells  us  that  in  that 
part  of  France  where  he  lived  in  1875  the  priests  had  lost 
their  influence  with  the  peasants  entirely  as  to  secular  affairs, 
because,  some   years  earlier,  there  had  been  an  extensive 
circulation  of  one-franc  pieces,  of  light  weight,  bearing  the 
effigy  of   Pope    Pius  IX.     These   had  been  coined  by  the 
Roman  mint  and  had  rushed  into  France  along  with  other 
Italian  coins  when  the  Latin  Monetary  Union  was  formed, 
Ithough  the  Papal  States  were  not  members  of  the  Union. 
Of  course,  that  government  had  no  rights  under  the  treaty, 
but  the  peasants  lost  two  sous  on  every  one  of  these  pieces, 
and  they  put  the  blame  on  the  Pope  and  then  on  the  priests 
as  agents  of  the  Pope.     So  convinced  were  they  of  the  intent 
to  defraud  them  that  when  the  war  of   1870 
broke  out  they  believed  that  the  Pope  assisted 
Prussia,   and  that  when  the  priests  collected 
money  for  parochial  purposes,  they  sent  it  to  Prussia.     One 
of  the  consequences  of  this  delusion  was  that  all  candidates 
for  the  Chamber  of  Deputies  who  were  supported  by  the 
.    priests  were  defeated  by  the  votes  of  the  peasants.1 

It  was  useless  to  say  to  these  people  that  they  ought  not 
to  have  taken  the  Roman  coins  and  that  they  were  them- 
selves to  blame  for  whatever  loss  they  suffered.  It  was  use- 
less to  tell  them  that  the  Pope  had  nothing  to  do  with  the 

1  Round  My  House.  Life  in  France  in  Peace  and  War,  by  Philip 
Gilbert  Hamerton,  p.  214. 


192  REPRESENTATIVE  MONEY. 

matter  anyway.  They  could  not  understand  such  arguments. 
The  only  facts  they  could  grasp  were  the  Pope's  effigy  and 
the  loss  of  the  two  sous. 

Our  legal  tender  act  taught  people  to  believe  lies.  First 
it  taught  them  that  the  government's  bonds  were  payable  in 
greenbacks.  In  the  act  of  1862,  authorizing  these  bonds,  it 
was  provided  that  the  interest  should  be  paid  in  coin.  This 
was  designed  for  the  purpose  of  maintaining  the  purchasing 
power  of  the  greenbacks,  which  were  fundable  into  bonds, 
and  of  keeping  up  the  price  of  the  bonds 
wlt^Greenba'cks.  themselves,  both  being  thus  linked  with  gold. 
But  nothing  was  said  about  paying  the  prin- 
cipal in  coin,  because  nobody  had  then  imagined  that  the 
government  could  pay  one  debt  with  another.  The  legal 
tender  act,  however,  said  that  the  notes  should  be  "  lawful 
money  and  a  legal  tender  in  payment  of  all  debts  public  and 
private  within  the  United  States  except  duties  on  imports 
and  interest  as  aforesaid."  These  words  being  printed  on 
the  greenbacks  had  the  same  misleading  effect  as  the  Pope's 
effigy  on  the  Roman  francs. 

Soon  after  the  passage  of  the  act  the  solecism  was  noticed 
by  some  people,  but  as  it  is  not  the  custom  of  Congress  to 
settle  disputes  till  they  become  dangerous,  nothing  was  done. 
It  was  distinctly  perceived,  however,  that  the 
ambiguity  might  have  a  bad  effect  on  future 
loans.  So  when  the  next  bill  was  passed  for 
borrowing  money  (that  of  March  3,  1863),  it  was  provided 
that  both  the  principal  and  interest  of  the  bonds  issued 
under  it  should  be  paid  in  coin.  Thus  the  germ  of  a  dan- 
gerous and  protracted  controversy  was  laid. 

On  the  first  of  January,  1863,  an  old  debt  of  the  govern- 
ment, contracted  in  1841,  for  $3,000,000  became  due,  and 
Secretary  Chase  paid  it  in  gold.  The  House  of  Represen- 
tatives had  previously  asked  him  by  resolution  (December 


AFTER  THE   WAR.  193 

1 6)  in  what  kind  of  money  he  intended  to  pay  it.     He  post- 
poned the  answer  until  he  had  actually  paid  it.     He   then 

said  (January  5)  that  he  had  paid  it  in  coin 
^dTn^oW0^  '  *n  order  to  keep  the  government's  credit 

good.  Mr.  Chase  here  rendered  his  country  a 
conspicuous  service.  Soon  afterwards  he  made  a  public 
statement  that  the  5-20  bonds  l  issued  under  the  act  of  1862 
were  payable  in  coin  also ;  but,  of  course,  his  mere  declara- 
tion could  not  bind  the  government. 

The  policy  of  paying  the  5—20  bonds  in  greenbacks  was 
made  a  political  issue  by  General  Butler  in  the  Republican 
camp,  and  by  George  H.  Pendleton  in  the  Democratic,  im- 
mediately after  the  close  of  the  war.  They 
and  many  other  politicians  advanced  the  fan- 
tastic conceit  that  the  government  could  pay 
the  first  piece  of  paper  with  a  second  one.  If  it  could  do 
so,  then  as  Professor  Newcomb  said,  it  could  pay  the  second 
piece  with  the  first.2  So  by  a  game  of  see-saw  or  thimble- 
rigging  the  whole  debt  could  be  paid  without  taxation.  As 
all  other  governments  could  rightfully  do  what  we  could,  all  — ••* 
national  debts  might  be  settled  in  a  twinkling.  But  there 
would  be  no  need  of  taking  the  trouble  to  exchange  an  in- 
terest-bearing bond  for  a  non-interest-bearing  note.  The 
whole  debt  could  be  cancelled  by  simply  passing  a  law  say- 
ing "all  bonds  of  the  United  States  are  legal  tender  and 
shall  cease  to  bear  interest  after  the  passage  of  this  act."  If 
that  could  be  called  paying  the  debt  what  would  be  repudi- 
ating it  ? 

There  was  a  hot  battle  over  this  question.  Both  Butler 
and  Pendleton  were  beaten  in  their  respective  national  con- 
ventions in  1868,  but  in  different  ways.  The  Republican 

1  Bonds  redeemable  in  five  years  and  payable  in  twenty  years. 

2  Financial  Policy  during  the  Southern  Rebellion.     By  Simon  New- 
>mb,  1865. 


194  REPRESENTA  77  VE  MONE  Y. 

Convention  discountenanced  in  its  platform  the  payment 
of  the  bonds  in  greenbacks.  The  Democratic  Convention 
favored  it,  but  rejected  Mr.  Pendleton  as  a 
candidate  for  the  Presidency,  and  nominated 
Horatio  Seymour,  who  was  strongly  opposed 
to  that  policy.  The  Republicans  carried  the  election,  and 
soon  thereafter  (March  18,  1869)  Congress  passed  an  act 
declaring  that  all  government  obligations  were  payable  in 
coin  unless  the  law  under  which  they  were  issued  expressly 
provided  for  some  other  payment. 

This  did  not  put  an  end  to  the  controversy,  however. 
The  fight  was  long  and  bitter.  It  continued  to  serve  as 
stage  thunder  even  after  the  resumption  of  specie  payments. 
Its  last  public  appearance  was  in  a  speech  of  Senator  Beck, 
of  Kentucky,  delivered  in  the  Senate,  December  21,  1885. 
In  this  speech  great  stress  was  laid  on  the  fact  that  the  back 
of  each  note  bore  a  printed  statement  saying  that  it  was 
legal  tender  for  all  payments,  public  and  private,  except 
duties  on  imports  and  interest  on  the  public 

IMlar ?  a  debt      True'    but  the    face  of   the  note  said> 

"The  United  States  will  pay" the  bearer  - 

dollars."  What  is  a  dollar  ?  Certainly  it  is  not  a  green- 
back, because  that  expressly  promises  to  pay  a  dollar.  It 
cannot  promise  to  pay  another  greenback.  That  would  be 
too  absurd.  In  the  case  of  Bank  vs.  Supervisors  (7  Wal- 
lace 26),  the  Supreme  Court  of  the  United  States  held  that 
the  greenback  was  a  promise  to  pay  coined  dollars. 

Another  false  idea  born  with  the  greenback,  was  that  the 

government  could  make  money.  If  it  could 
Can  the  Govern-  make  money  people  said  that  it  ought  to.  Does 
Money?  not  the  government  exist  for  the  benefit  of 

the  people?  It  is  for  the  benefit  of  the  people 
to  have  plenty  of  money,  because  the  more  of  it  a  man  has, 
the  more  comforts  he  can  enjoy.  This  idea  led  to  the  pas- 


AFTER  THE   WAR. 


195 


sage  of  the  Inflation  Bill  of  1874,  which  was  vetoed  by 
President  Grant.  The  bill  provided  for  an  increase  of  only 
$44,000,000  of  greenbacks,  —  the  amount  retired  by  Secre- 
tary McCulloch, — but  it  contained  the  whole  principle  of 
adding  to  an  irredeemable  currency,  in  time  of  peace.1 
President  Grant  was  quite  right  in  saying  that 

President  Grant    "if    in    practice   the    measure    should   fail    to 

vetoes  the  In-  ...        , 

nation  Bill.          create  the  abundance  ot  circulation  expected 

of  it,  the  friends  of  the  measure,  particularly 
those  out  of  Congress,  would  clamor  for  such  inflation  as 
would  give  the  expected  relief."  His  veto  of  this  measure 
is  worthy  of  all  the  praise  that  has  been  bestowed  upon  it. 
It  practically  killed  greenback  inflation,  although  a  hot  battle 
was  fought  over  it  at  the  polls  the  following  year.  The 
center  of  this  engagement  was  in  the  State  of  Ohio,  where 
the  Democrats  had  declared  in  their  platform  that  the 
amount  of  money  ought  to  be  made  "equal  to  the  wants  of 
trade."  This  sophism  was  slain  by  Carl  Schurz  in  a  speech 
at  Cincinnati,  which  decided  the  campaign. 

The  phrase  "  equal  to  the  wants  of  trade  "  means  the 
wants  of  anybody  in  trade,  unless  we  have  a  heavenly 
oracle  to  tell  us  what  those  wants  are.  It  also 
"  Equal  to  the  requires  measures  to  put  the  person  in  posses- 
Trade."  si°n  °f  what  he  wants.  Since  all  must  be 
treated  alike,  it  follows  that  everybody  must 
be  served  with  greenbacks  at  the  public  treasury  till  he  says 
he  has  enough.  To  give  everybody  all  the  greenbacks  he 
wants  would  give  nobody  an  advantage,  except  by  canceling 
past  debts.  Therefore  an  act  of  Congress  canceling  all 
debts  would  accomplish  the  same  end  more  expeditiously. 

The  Inflation  Bill  having  been  a  Republican  measure  and 

1  Of  this  $44,000,000  the  sum  of  $26,000,000  had  already  been  re- 
issued by  Secretary  Richardson  without  authority  of  law,  if  not  in  vio- 
lation of  it,  in  a  vain  attempt  to  stay  the  panic  of  1873. 


196  REPRESENTATIVE  MONEY. 

vetoed  by  a  Republican  President,  the  party  was  left  in  the 
lurch.  It  lost  the  elections  of  1874  by  heavy  majorities. 
It  was  necessary  to  face  the  other  way  at  once.  On  the 
2  ist  of  December,  the  Senate  Committee  on  Finance  reported 
a  bill  providing  for  the  resumption  of  specie 
Payments  on  the  nrst  of  January,  1879.  It 
was  passed  on  the  following  day  by  32  to  14. 
It  was  taken  up  in  the  House  on  the  7th  of  January  and 
passed  the  same  day  by  124  to  107.  It  authorized  the 
Secretary  of  the  Treasury  to  sell  bonds  without  limit,  in 
order  to  obtain  the  necessary  coin.  The  sum  of  $95,500,000 
in  gold  was  obtained  by  Secretary  Sherman  in  this  way  in 
1877  and  1878,  at  the  rate  of  $5,000,000  per  month  by  a 
contract  with  a  syndicate  of  bankers  of  whom  the  Rothschilds 
were  the  most  important  members.  The  syndicate  promised 
to  do  all  in  their  power  outside  of  the  contract  to  promote 
resumption  by  controlling  the  movement  of  gold  in  favor  of 
the  United  States,  and  there  is  evidence  that  they  did 
control  it  to  some  extent.  When  the  day  ap- 
pointed  for  resumption  arrived  the  Treasury 
held  upwards  of  $133,000,000  of  gold  and 
there  was  no  premium  on  it  in  the  market.  In  fact  green- 
backs were  at  par  on  the  i7th  of  December,  1878.  The 
Gold  Room  was  closed  the  following  day  and  never  reopened. 
No  gold  was  drawn  from  the  Treasury  on  Resumption  day 
and  only  $11,000,000  during  the  year. 

Did  the  Resumption  Act  cause  the  advance  of  the  green- 
back to  par  ?  That  it  was  capable  of  doing  so  and  that  in 
the  hands  of  an  energetic  finance  minister  (as  Mr.  Sherman 
was)  it  must  have  done  so,  there  is  no  doubt.  Provided  the 
credit  of  the  United  States  was  good  and  the  country's  in- 
dustries fairly  prosperous,  he  could  have  drawn  from  the 
world's  stock  of  gold  any  required  sum.  His  authority  to 
sell  bonds  was  not  limited  as  to  time  or  amount. 


AFTER   THE   WAR.  197 

The  course  of  events,  however,  shows  that  the  Resump- 
tion Act  was  not  the  most  potent  factor  in  bringing  the 
greenbacks  to  par.  Gold  took  a  decided  turn  downward  at 
the  end  of  1870,  reaching  no^  in  December.  At  this 
time  there  was  no  movement  in  Congress,  or  anywhere,  for 
specie  resumption.  It  has  been  shown  in  a  former  chapter 
that,  in  a  country  having  an  irredeemable  currency,  its  value 
is  indicated  by  the  foreign  exchanges.  In  August,  1869,  $100 
in  greenbacks  would  buy  American  goods  and  produce  which 
would  sell  for  £15  in  England,  or  the  equiv- 

Gradnal  Rise  of     alent  of  about  $75  gold.     In  December,  1870, 
the  Greenback  in     ,  ,       ,  ,  ,   , 

the  Seventies.  the  same  $100  greenbacks  would  buy  Ameri- 
can goods  that  would  sell  for  £18,  or  about 
$90  gold.  The  supply  of  instruments  of  exchange  was  the 
same  at  both  periods,  but  the  demand  for  them  was  greater 
at  the  second  period  than  at  the  first.  For  this  reason  they 
gained  in  value  to  the  extent  of  about  15  per  cent.  Be- 
tween 1870  and  1879,  there  were  ups  and  downs,  the  value 
of  the  greenback  being  measured  at  all  times  by  its  purchas- 
ing power  in  American  exportable  goods.  The  passage  of 
the  Resumption  Act  in  January,  1875,  did  not  lower  the 
gold  quotation.  It  was  decidedly  higher  that  year  than  it 
had  been  in  the  previous  one,  the  maximum  of  1874  being 
113^6,  while  in  1875  ^  was  TI7/^-  The  explanation  is  that 
there  was  a  greater  demand  for  instruments  of  exchange 
in  the  former  year  than  in  the  latter.  Consequently  they 
would  buy  more  goods  per  dollar  and  therefore  more  gold. 

In  the  latter  part  of  1876,  the  gold  quotation  fell  as  low 
as  107,  greenbacks  being  now  worth  93  cents  per  dollar. 
In  1877  there  was  a  slow  but  steady  rise  of  the  greenback. 
The  bond  syndicate  was  now  at  work  and  the  Treasury  was 
receiving  the  $5,000,000  monthly.  At  the  end  of  the  year 
the  gold  quotation  was  102^.  This  movement  continued 
the  following  year  till  December  17,  when  the  gold  premium 


198  REPRESENTATIVE  MONEY. 

disappeared  altogether.  The  banks  of  New  York  now  took 
an  important  step  by  discontinuing  special  gold  accounts 
with  their  customers,  and  receiving  deposits 

reat importa-     only  as    "dollars."      Business  now   became 
tion  of  Gold  in  .  ,         .  -.' 

1880  and  1881.  very  active.  The  demand  for  more  instru- 
ments of  exchange  continued  during  1880  and 
1881,  and  resulted  in  an  importation  of  $175,000,000  gold 
in  those  two  years. 

When  the  Resumption  Act  passed,  very  few  persons,  in 
Congress  or  out,  believed  that  it  would  accomplish  the 
object.  It  was  looked  upon  as  a  political  manoeuvre  and 
brntum  fulmen.  As  the  time  approached,  and  it  became 
evident  that  resumption  would  take  place,  Congress  became 
alarmed  at  the  prospect,  and  began  to  ask  what  would 
become  of  the  dear  greenbacks  after  they 

Greenbacks          were  Adeemed.     Should  they  be  retired  and 
Reissued. 

cancelled,  or  not?  A  bill  to  prevent  their  re- 
tirement and  to  provide  for  their  reissue  was  passed  in  the 
House  without  debate.  In  the  Senate  Mr.  Bayard  moved 
an  amendment,  that  notes  redeemed  and  reissued  should 
not  be  legal  tender  between  individuals.  This  was  rejected 
by  a  vote  of  18  to  42,  and  the  bill  was  passed  as  it  came 
from  the  House.  It  is  the  act  of  May  31,  1878. 


CHAPTER  VIII. 
SILVER    DOLLARS. 

OUR  silver  legislation  followed  closely  upon  the  heels  of 
the  Inflation  Bill.     It  was  part  and  parcel  of 

1"  the  demand  for  cheaP  dollars  and  more  of 
them.     In  1876  silver  had  fallen  in  price  about 

ten  per  cent.     This  was  better  than  nothing  to  the  beaten 
inflationists.     They  looked  at  the  law,  and  found  that  the 


SILVER  DOLLARS.  199 

silver  dollar,  the  only  legal  tender  coin  of  that  metal,  had 
been  abolished  by  an  act  of  Congress,  passed  in  1873,  and 
that  those  of  them  who  were  members  of  Congress  at  that 
time  had  voted  for  it.  So  they  said  that  they  had  been 
tricked  and  deceived,  that  this  act  of  1873  was  a  conspiracy 
against  the  debtor  class,  and  that  it  was  passed  in  a  clan- 
destine manner.  They  declared  that  this  was  a  great  wrong. 
Many  people  who  had  no  particular  interest  to  be  served  by 
inflation  really  thought  that  a  wrong  had  been  done.  Some 
of  them  thought  that  the  wrong  had  been  done  to  silver 
itself. 

One  of  the  phrases  in  common  use  was  and  is  that  we 
ought  not  to  discriminate  against  either  metal.  This  passed 
for  a  very  sound  maxim  and  has  probably  led  more  people 
astray  than  any  other  catch- word  in  the  whole  controversy. 
It  was  easy  to  persuade  the  unthinking  that  it  applied  with 
the  same  force  to  gold  and  silver  as  to  human  beings.  But 
obviously  it  does  not  apply  to  gold  and  silver  unless  they 
are  human  beings.  If  they  are  merely  metals  it  is  quite 

proper  to  discriminate  between  them.  The 
tions  power  to  discriminate  between  things  more  or 

less  useful  is  what  distinguishes  men  from 
brutes.  Mankind  has  been  discriminating  between  good 
kinds  of  money  and  bad  kinds  from  the  dawn  of  history. 
Another  very  misleading  phrase  in  common  use  is  "free 
silver."1  Still  another  is  the  phrase  "  dollar  of  the  fathers," 
implying  that  the  fathers  of  the  present  generation  had  great 

1 "  You  can  stand  on  the  corner  of  any  street  on  the  Strand  and  ask 
the  first  100  men  of  all  grades  of  intelligence  who  pass  to  explain  what 
'free  silver'  means,  and  90  will  tell  you  honestly  that  they  know  nothing 
about  it.  Yet  the  words  '  free  silver '  sound  well.  A  few  of  them  say 
they  are  not  opposed  to  accepting  some  of  it  if  offered  to  them  for 
nothing."  Letter  of  Mr.  Geo.  Sealy  in  Galveston  Daily  News,  October 
22,  1894.  ,4 


200  REPRESENTATIVE  MONEY. 

attachment  to  the  silver  dollar,  whereas  they  discarded  it 
with  deliberation  in  1834.     /*  V/ 

Under  the  influence  of  such  crude  conceptions  a  Congress 
was  elected  in  1876  which  was  understood  to  be  pledged  to 
restore  the  dollar  of  the  fathers,  but  how  it  should  be  done 

was  not  clear.  The  House  passed  a  bill 
Bland  BUI.  offered  by  Mr.  Bland  for  the  coinage  of  silver 

on  the  same  terms  as  gold  and  at  the  ratio  of 
1 6  to  i,  the  market  ratio  at  that  time  being  18  to  i.  This 
would  have  been  remonetization. 

The  Senate,  on  motion  of  Mr.  Allison,  amended  the  bill 
by  providing  that  the  government  should  buy  not  less  than 

two  million  dollars'  worth  and  not  more  than 
m^nt™ Amend"  four  million  dollars'  worth  of  silver  bullion 

each  month  and  coin  it  into  silver  dollars, 
these  to  be  full  legal  tender  money.  The  resulting  coins 
would  belong  to  the  government,  and  might  be  sold  to  in- 
dividuals, or  paid  out  for  debts,  or  for  subsequent  purchases 
of  silver  bullion.  In  every  case  they  would  be  used  at  par, 
so  that  there  would  be  a  gain  to  the  government  upon  all 
the  coins  worked  off.  Thus,  if  a  given  amount  of  bullion 
cost  the  government  $10,000  and  if  11,000  silver  dollars 
were  produced  from  it  and  sold  to  the  public,  or  paid  out  at 
par,  then  so  long  as  they  remained  in  circulation  the  govern- 
ment made  a  profit  of  $1,000.  This  fact  was  made  use  of 
to  defeat  Mr.  Eland's  free  coinage  bill.  The  advocates  of 
the  Allison  substitute  said  that  the  government  ought  to 
make  this  profit  instead  of  private  individuals.  This  seemed 
plausible  and  it  was  generally  approved,  but  it  was  as 

absolute  a   defeat    of   the    remonetization    of 

silver    as    though    the    Bland    bill    had    been 

wholly  rejected.  The  Allison  bill  was  vetoed 
by  President  Hayes,  but  was  passed  over  his  veto  and  be- 
came a  law  February  28,  1878.  Three  unsuccessful  attempts 


SILVER  DOLLARS.  201 

were  made  subsequently  in  the  House  to  pass  a  "free 
coinage"  bill  (April  8,  1886,  June  25,  1890,  and  March 
24,  1892). 

After  the  Allison  bill  was  passed  the  "friends  of  silver" 
settled  down  to  the  quiet  and  joyful  contemplation  of  two 
million  new  dollars  dropping  from  the  Mint  every  month, 
not  observing  that  this  institution  consumed  two  million 
gold  dollars  or  thereabouts  in  the  process.  Here  were  two 
operations  going  on  side  by  side.  The  Mint,  regarded  as 
a  manufacturing  establishment,  was  buying  bullion  and 
selling  coins,  crediting  itself  with  the  seigniorage,  i.e.,  the 

difference  between  the  raw  material  and  the 
Seigniorage.  finished  product.  This  was  one  operation. 

The  other  consisted  of  a  people  who  needed 
a  certain  number  of  instruments  of  exchange  called  dol- 
lars for  the  transaction  of  their  daily  business.  These 
instruments  they  paid  for  with  their  labor  and  their  property 
at  the  rate  of  100  cents  per  dollar.  Obviously  they  could 
have  whichever  metal  they  preferred.  Gold  value  will 

always  bring  gold,  ex  m  termini.  But  the 
How  it  worked,  silver  dollars  would  not  circulate  abroad,  while 

the  gold  ones  would.  So  the  gold  ones  went 
abroad,  or  (which  is  the  same  thing)  staid  abroad,  whereas 
they  would  have  come  here  to  meet  a  demand  for  instru- 
ments of  exchange  if  there  was  a  deficiency.  This  is  the 
other  operation.  Thus  the  Allison  bill  did  not  make  money 
more  plentiful,  although  it  seemed  to  do  so. 

The  bill  was  a  concession  to  misguided  public  opinion, 
and  was  the  least  mischievous  measure  that  was  possible 

at  that  time.  Either  the  Bland  bill  or  the 
A  "Pis  Aiier."  Allison  bill  was  inevitable.  The  latter  was  far 

preferable,  for  although  expensive  in  dollars 
and  cents  it  preserved  the  gold  standard  and  the  nation's 
good  faith.  It  was  what  the  French  call  a  pis  aller.  It  was 


202  REPRESENTATIVE  MONEY. 

necessary  to  take  that  or  something  worse.  The  whole 
number  of  dollars  coined  under  the  operation  of  the  Allison 
act  was  $378,166,793.  Of  these  about  $57,000,000  entered 
into  circulation  in  their  metallic  form  and  the  remainder  as 
silver  certificates,  the  law  authorizing  any  holder  of  the  dol- 
lars to  deposit  them  in  the  Treasury  and  receive  certificates 
of  deposit  therefor.  The  certificates  are  not  legal  tender, 
but  are  receivable  for  all  public  dues. 

In  the  summer  of  1890  circumstances  of  a  political  sort 
gave  the  silver  men  a  majority  of  the  Senate  and  enabled 
them  to  pass  a  free  coinage  bill  in  that  body,  June  17. 
The  House,  June  25,  refused  to  concur,  and  a  Conference 
Committee  was  appointed,  which  reported  the  Sherman  bill 
so-called,  which  was  passed  July  14.  This  measure 
provided  that  the  Secretary  of  the  Treasury  should  buy 
4,500,000  ounces  of  silver  bullion  each  month  at  the  market 
value  thereof,  and  pay  for  the  same  with  treasury  notes,. 

and  that  "  upon  the  demand  of  the  holder  of 
The  Sherman  any  of  the  treasury  notes  herein  provided  for, 

the  Secretary  of  the  Treasury  shall,  under 
such  regulations  as  he  may  prescribe,  redeem  such  notes  in 
gold  or  silver  coin  at  his  discretion,  it  being  the  established 
policy  of  the  United  States  to  maintain  the  two  metals  on  a 
parity  with  each  other  upon  the  present  legal  ratio  or  such 
ratio  as  may  be  provided  by  law."  The  treasury  notes 
were  declared  to  be~  "  legal  tender  in  payment  of  all  debts, 
public  or  private,  except  where  otherwise  expressly  stipulated 
in  the  contract." 

This  meant  that  the  Secretary  should  buy  silver  bullion, 
give  his  notes  for  it,  and  redeem  the  notes  in  gold  the  next 
minute  if  asked  to  do  so.  This  was  the  same  thing  as  pay- 
ing gold  for  it.  The  amount  of  silver  to  be  bought  under 
the  Sherman  law  was  almost  double  the  amount  under  the 
Allison  law,  but  in  return  for  this  concession  the  provision 


SILVER  DOLLARS.  203 


contained  in  the  last  clause  was  secured.      This   purports 
merely  to  declare  what  the  policy  of  the  government  is  and 
has  heretofore  been,  /.<?.,  to  keep  the  gold  dol- 
lar and  the  silver  dollar  at  par  with  each  other ; 
but   in  reality  it   established   that  policy  for 
the  first  time  in  our  history.     It  is  not  strictly  a  command 
laid  upon  the  Secretary  of  the  Treasury,  but  it  is   a  guide- 
post  which  he  cannot,  safely  disregard. 

There  was  a  large  advance  in  the  price  of  silver  concur- 
rently with  the  passage  of  this  act,  due  to  speculative  pur- 
chases, but  it  was  only  temporary.  The  price  in  New  York 
on  the  first  of  July,  1890,  was  $1.04  per  ounce.  On  the  igth 
of  August  it  had  risen  to  $1.21.  At  the  beginning  of  Sep- 
tember it  began  to  fall,  and  at  the  end  of  December  it  was 
down  again  to  $1.04.  The  fall  in  price,  after  the  specula- 
tion had  exhausted  itself,  was  due  to  increased  production, 
that  of  the  United  States  alone  increasing  four  million 
ounces  in  the  year. 

The  explanation  of  the  Sherman  act  is  in  substance  the 

same  as  that  of  the  Allison  act.     It  was  another  flank  attack 

upon  popular  errors.     It  was  the  smallest  concession  to  the 

silver  men  short  of  free  coinage  that  was  polit- 

AUerh'e'r"PiS       ically   P°ssible-      The    House    might   indeed 
have   rejected  the  bill  altogether.     President 
Harrison  might  have  vetoed   it,    as   President   Hayes    had 
vetoed  the  Allison  bill.     Political  considerations,   however, 
prevailed  over  financial  ones.     All  the  silver  legislation  down 
to  the  repeal  of  the  Sherman  act  is  explainable  in  this  way. 
It  has  been  a  fencing-match  of  political  parties.      Any- 
body who  seeks  a  financial  reason  will  be  dis- 

Feifcfn^Match      aPP°mted-    It:  is  Part  and  parcel  of  our  scheme 
of   government    that  the  multitude  must  de- 
cide intricate  questions  of  finance  which  they  do  not  under- 
stand,  and  where  a  mistake   may  produce   appalling    con- 


204  REPRESENTATIVE  MONEY. 

sequences.  There  are  few  statesmen  bold  enough  to 
confront  popular  errors  squarely.  Fortunately,  President 
Cleveland  is  one  of  these,  and  his  example  shows  that  such 
boldness  does  not  go  unrewarded. 

The  Sherman  act  provided  that  the  coining  of  silver  dol- 
lars should  continue  at  the  rate  of  2,000,000  ounces  per 
month  until  July  i,  1891,  and  that  coining  should  then 
cease,  the  bullion  being  stored  in  the  Treasury.  Under  this 
law  168,000,000  ounces  of  silver  were  bought,  of  which 
28,000,000  ounces  were  coined,  producing  36,000,000  dol- 
lars, and  $156,000,000  of  Treasury  notes  were  issued.1 

When  the  Allison  act  was  passed  in   1878  its  opponents 

predicted  that  sooner  or  later  it  would  cause 

Panic  Predicted,    a  financial  panic.     They  said  that  since  the 

metallic  value   of  the  silver  dollars   was   not 

equal  to  the  face  value  they  were  simply  a  new  kind  of  fiat 

1  At  the  meeting  (October,  1894)  of  the  American  Bankers'  Associ- 
ation, Hon.  A.  B.  Hepburn  presented  the  following  statistical  informa- 
tion, which  he  had  obtained  from  the  Bureau  of  the  Mint : 

1.  Total  coinage  of  silver  dollars  underact  of  February 

28,  1878 $378,166,793 

2.  Total  cost  of  silver  bullion  used  in  such  coinage    .     .  308,279,261 

3.  Seigniorage  or  apparent  profit 69,887,531 

4.  Bullion  value  of  silver  used  in,  such  coinage  at  present 

market  price 186,207,289 

5.  Difference  between  actual  cost  and  bullion  value  at 

present  market  price 122,071,972 

6.  Bullion  purchased  under  act  of  July  14,  1890,  cost      .  155,981,002 

7.  Market  value  of  such  bullion  at  present  market  price  107,832,037 

8.  Depreciation  of  value  in  same 48,098,965 

The  loss  to  the  people  is  the  whole  cost  of  the  bullion  purchased 

under  the  two  acts,  viz.,  $464,260,263,  since  nothing 
Cost  of  the  Silver  ,  .  , 

Legislation  can        done  Wlth  it  except  to  bury  it  underground,  and 

since  it  is  the  government's  credit  and  not  the  buried 
silver  that  promotes  the  circulation  of  the  notes  and  certificates.  It  is 
easy  to  see  that  silver  dollars  are  the  most  expensive  form  of  fiat  money. 


SILVER  DOLLARS.  205 

money,  and  that  whenever  they  should  become  redundant 
they  would  act  like  any  other  fiat  money  —  like  the  green- 
backs at  the  beginning  of  the  war,  for  example.  There 
would  then  be  a  change  in  the  standard  of  value,  gradual, 
perhaps,  but  sure.  This  was  a  true  prophecy,  but  the  fulfill- 
ment was  long  delayed. 

The  demand  for  more  instruments  of  exchange,  which  had 
contributed  so  powerfully  to  bring  the  greenbacks  to  par, 
continued.  This  demand  happened  to  coincide  with  a 
shrinkage  of  the  volume  of  national  bank  notes  due  to  the 
reconversion  of  the  public  debt  and  to  a  rapid  advance  in 
the  price  of  the  national  bonds,  which  made  it  profitable  for 
the  banks  to  retire  their  circulation  and  sell  their  bonds. 
One  hundred  and  sixty-eight  million  dollars  of  the  bank 
notes  were  retired  between  November,  1882,  and  February, 
1890,  i.e.,  in  seven  years  and  three  months.  The  output 
of  silver  dollars  only  kept  pace  with  this  shrinkage,  or  little 
more.  So  long  as  this  condition  lasted  there 
But  Delayed.  would  be  no  excess  of  instruments  of  ex- 
change. The  new  silver  dollars  were  merely 
filling  a  vacuum  created  by  another  set  of  causes.  But  this 
was  a  silent  operation.  The  public  could  not  understand 
it,  and  so,  as  years  rolled  on  and  no  mischief  came  from  the 
coining  of  silver  dollars,  the  predictions  of  panic  fell  under 
popular  ridicule. 

The  Sherman  act,  although  differing  from  the  Allison  act 
in  form,  and  in  the  amount  of  silver  purchased,  was  of  the 
same  nature  :  it  provided  for  a  larger  injection  of  fiat  money 
into  the  circulation.  The  predictions  of  disaster  were  now 
renewed  and  they  gained  more  attention.  The 
Export^01  act  Pr°duced  a  very  unfavorable  effect  abroad. 

The  year  1891  saw  the  largest  exportation 
of  gold  in  our  history,  being  upwards  of  seventy  mil- 
lions in  six  months,  nearly  all  of  which  was  taken  out  of  the 


206  REPRESENTATIVE  MONEY. 

Treasury  within  one  year  after  the  passage  of  the  Sherman 
act. 

In  1882  Congress  had,  in  a  roundabout  way,  established 
a  fund  of  $100,000,000  gold  as  a  special  reserve  for  the  re- 
demption of  greenbacks.  A  bill  to  amend  the  National 

Bank  act  was  then  under  consideration  in  the 
GoiVRese?v°e'°00  Senate-  A  section  relating  to  gold  certificates 

of  deposit  was  embraced  in  it.  On  the  2ist 
of  June,  in  that  year,  Senator  Aldrich  moved  an  amend- 
ment to  it  in  these  words  : 

"Provided  that  the  Secretary  of  the  Treasury  may,  in  his 
discretion,  suspend  the  issue  of  such  certificates  whenever 
the  amount  of  gold  coin  and  gold  bullion  in  the  Treasury 
available  for  the  redemption  of  United  States  notes  falls 
below  $100,000,000." 

The  object  of  this  amendment,  as  explained  in  debate, 
was  to  prevent  the  holders  of  greenbacks  from  drawing  gold 
from  the  Treasury,  redepositing  it  there,  and  taking  gold 
certificates  for  it,  all  at  one  operation,  thus  possessing  them- 
selves perhaps  of  all  the  gold  in  the  Treasury  and  at  the 
same  time  using  the  government's  vaults  as  a  free  safe 
depository.  Senator  Allison  remarked,  while  this  amend- 
ment was  under  consideration,  that  "thus  far  there  had  been 
no  absolute  definition  of  what  the  reserve  fund  should 

amount  to."     In  order  to  supply  such  a  defini- 

SJ.5HJ          tion  Senator  Ingalls  moved  to  substitute  the 
-bstaDjusneu. 

word  "reserved"  for  the  word  "available"  in 
Mr.  Aldrich's  amendment.  This  was  agreed  to.  Senator 
Ingalls  then  moved  to  amend  further  "by  striking  out  that 
portion  of  the  proviso  which  gives  the  Secretary  of  the 
Treasury  discretion  to  infringe  on  the  fund,  by  inserting  the 
word  'shall.'  I  wish  (he  said)  to  make  the  language  more 
specific  so  as  to  read  :  'That  the  Secretary  of  the  Treasury 
shall  suspend  the  issue  of  such  gold  certificates,'  '  This 


SILVER  DOLLARS.  207 

vvas  accepted,  and  then  the  Aldrich  amendment  as  amended 
was  agreed  to  without  a  division,  and  the  House  concurred. 
Accordingly  Mr.  C.  N.  Jordan,  the  Treasurer  of  the  United 
States,  in  adopting  some  changes  in  the  method  of  stating 
the  public  debt  in  1885,  put  the  sum  of 
statement  $100,000,000  gold  in  a  separate  fund  as  "re- 

served for  the  redemption  of  United  States 
notes."  T.his  being  repeated  month  after  month  and  year 
after  year,  it  became  fixed  in  the  public  mind  that  this 
amount  of  gold  was  set  apart  for  this  particular  purpose. 
There  can  be  no  doubt  that  such  was  the  intention  of  Con- 
gress, although  the  language  might  have  been  more  explicit. 
The  year  1892  passed  without  any  great  trouble,  but  a 
very  uneasy  feeling  prevailed  at  the  beginning  of  1893. 
There  was  a  renewal  of  gold  exports  on  a  large  scale.  There 
had  been  a  change  of  administration  at  Washington.  The 
new  Secretary  of  the  Treasury,  Mr.  Carlisle,  apparently 
entertained  doubts  whether  the  $100,000,000  gold  accumu- 
lated in  1877-78  for  the  redemption  of  greenbacks  could  be 
lawfully  used  for  any  other  purpose.  The  excess  in  the 
Treasury  over  the  $100,000,000  was  now  very  small  and 
was  diminishing  from  day  to  day.  A  telegram  was 
sent  to  the  press  from  Washington  on  the 
Panic  of  1893.  i8th  of  April,  implying  that  when  this  excess 
should  be  exhausted  the  treasury  notes  issued 
under  the  Sherman  act  would  no  longer  be  redeemed  in 
gold.  The  telegram  was  contradicted  the  next  day  and 
the  announcement  was  made  by  Mr.  Carlisle  himself  that 
treasury  notes  would  be  redeemed  in  gold  under  all  circum- 
stances, but  in  the  feverish  state  of  the  public  mind,  the 
bad  impression  remained.  It  was  intensified  a  few  days 
later  when  the  Treasury  statement  showed  less  than 
$100,000,000  gold  on  hand,  for  the  first  time  since  1878. 
On  the  26th  of  June  the  news  came  that  the  government 


208  REPRESENTATIVE  MONEY. 

of  India  had  demonetized  silver,  the  price  of  which  fell  from 
$0.82  to  $0.67  per  ounce  in  three  days.     Even  before  this 
event  public  opinion,   as  voiced  in  the  press, 
Action  of  India,     had  become  very  emphatic  that  silver  legisla- 
tion was  at  the  bottom  of  the  trouble  and  that 
the  Sherman  act  ought  to  be  repealed. 

When  the  news  from  India  came  the  demand  for  an  extra 
session  of  Congress  for  this  purpose  became  overwhelming 
and  President  Cleveland  called  it  for  the  yth 
of  August-  A  bi]1  to  repeal  the  purchasing 
clause  of  that  act  passed  the  House  by  a  vote 
of  239  to  1 08  on  the  2ist  of  that  month.  In  the  Senate 
there  was  a  long  delay  due  to  the  lack  of  any  rule  for  ter- 
minating debate.  It  seemed  at  one  time  as  though  the 
country  was  on  the  eve  of  some  great  change  in  consequence 
of  the  revolutionary  conduct  of  certain  senators  in  refusing 
to  allow  a  vote  to  be  taken.  After  a  struggle  of  two  months 
and  when  the  tension  had  become  really  appalling  it  was 
announced  that  a  compromise  had  been  agreed  upon,  by 
virtue  of  which  the  hostile  Democrats  would  allow  a  vote  to 
be  taken.  The  next  day  it  was  announced  authoritatively 
that  President  Cleveland  would  not  be  a  party  to  any  com- 
promise. This  meant  that  he  would  veto  the  compromise  if 
passed,  in  which  case  the  whole  work  must  be  done  over 
again.  Then  the  filibustering  Democrats  announced  to  the 
Republicans  from  the  silver-mining  states  that  they  could 
hold  out  no  longer  and  that  a  vote  must  be  taken.  There 
had  never  been  a  doubt  as  to  how  the  vote  would  stand  if  it 
could  be  reached.  It  was  taken  on  the  3oth 

Sherma^Act.  of  October>  Yeas  43 »  naYs  32-  Jt  was  one  of 
the  fortunate  incidents  in  our  career  as  a 
nation  that  Mr.  Cleveland  was  president  at  this  juncture. 
No  Republican  president  could  have  moved  the  Demo- 
cratic majority  of  Congress  to  pass  that  bill.  No  other 


SILVER  DOLLARS.  209 

Democrat,  who  was  within  the  range  of  choice,  would  have 
done  so. 

It  is  evident  that  the  country  had  a  sufficiency  of  instru- 
ments of  exchange  in  the  summer  of  1890  before  the  Sher- 
man act  was  passed.     If  there  were  still  a  vacuum  it  would 
be  as  easy  to  fill  it  with  gold  as  with  silver,  but  in  fact  we 
exported  during  the  operation  of  the  Sherman 

to* ti^t  AC?  DUC  act  ab°ut  as  many  g°ld  dollars  as  we  obtained 
of  silver  ones,  the  output  of  treasury  notes  to 
July  ist,  1893,  being  $140,661,694  and  the  net  export  of 
gold  during  the  same  time  $141,017,158.  Our  history 
teaches  that  whenever  there  is  an  excess  of  instruments  of 
exchange  one  of  two  things  will  happen.  If  they  are.  of 
gold,  or  redeemable  in  gold,  there  will  be  an  outflow  of  the 
surplus.  If  not,  there  will  be  depreciation  of  the  whole  mass. 

It  has  been  argued  that  if  the  panic  of  1893  had  been 
caused  by  silver,  people  would  have  drawn  gold  from  the 
banks  first,  whereas  they  drew  any  and  every  kind  of  paper 
money  in  preference.  Those  who  predicted  a  panic  in  con- 
sequence of  silver  legislation  did  not  predict  that  people 
would  act  rationally  when  it  came,  but  their  action  was  not 
as  irrational  as  it  seemed.  There  was  a  stampede.  People 
clutched  at  the  means  of  payment,  and  they  took  what  was 
most  easily  handled.  The  important  question  is,  what 
caused  the  stampede  ?  The  genesis  of  panics  is  not  always 
easy  to  make  out,  but  I  can  perceive  no  cause  in  this  case 
except  the  fear  of  a  change  in  the  standard  of  value. 

Among  the  causes  contributing  to  this  fear  was  a  large 
deficiency  of  public  revenue,  pointing  to  the 

A  Treasury          necessity  of  using  the  gold  reserve  soon  for 
Deficit  and  its 

luences.       daily   expenses.      People  anticipated  this  by 

drawing  gold  in  advance  of  any  real  need  of 
it.  This  was  especially  true  of  the  holders  of  foreign  capital 
in  the  United  States.  They  presented  legal  tender  notes  at 


210  REPRESENTATIVE  MONEY. 

the  sub-treasury,  took  gold  and  sent  it  abroad.  The  Treas- 
ury then  used  the  legal  tender  notes  to  meet  its  expenses, 
thus  complying  with  the  terms  of  the  law,  but  really  paying 
a  part  of  its  ordinary  disbursements  out  of  the  gold  reserve. 
It  could  not  do  otherwise.  The  reserve  had  fallen  below 
the  conventional  $100,000,000  in  April,  1893,  and  it  shrank 
to  $65,000,000  the  following  January. 

It  was  now  necessary  to  do    something    decisive.     The 

President  and  the  Secretary  had  asked  Congress  to  provide 

for  the  emergency,  but  that  body  had  neglected 

Loss  of  Gold  in      to  do  sa  Under  the  Resumption  Act  of  1875, 

the  Secretary  had  power  to  sell  any  one  of 
three  classes  of  bonds  for  the  purpose  of  beginning  and 
continuing  the  redemption  of  United  States  notes.  Another 
law,  not  noticed  at  the  time,1  gave  him  power  to  buy  coin  at 
his  discretion,  and  pay  for  it  with  any  bonds  authorized  by 
law.  Under  the  Act  of  1875,  the  Secretary  advertised  the 

sale  of   $50,000,000  of  5  per  cent  bonds  to 

Sales  of  Bonds  run  ten  years  and  to  be  sold  at  the  rate  of 
for  Greenback  ,  ,  c  .  .  , 

Redemption.          $117-223  gold  for  each  $100,  thus  making  the 

rate  of  interest  equal  to  3  per  cent.  There 
was  no  application  for  any  considerable  amount  of  the 
bonds  until  the  last  day,  when  a  group  of  New  York  bankers 
subscribed  for  the  whole  lot  at  the  price  named.  Payment 
being  made,  the  gold  in  the  Treasury  rose  to  $106,000,000 
in  February,  1894. 

As  the  same  causes  were  still  at  work  the  same  effects 

were  produced.     The  drain  continued.     In  July  the  stock 

was  reduced  to  $55,000,000.     From  this  point 

Ineffectual.  there  was  a  rise  to  $61,000,000  in  October. 

A  second  loan  was  made  in  November  of  the 

same  amount  as  before. 

The  public  were  now  thoroughly  alarmed  on  both  sides  of 

1  See  page  1 56. 


SILVER  DOLLARS.  211 

the  water.  The  ability  of  the  government  to  continue  gold 
payments  was  generally  called  in  question  for  the  first  time 
since  January,  1879.  The  gold  received  for  the  second 
$50,000,000  of  bonds  disappeared  like  water  poured  on  the 
sand.  The  reserve  fell  to  $44,000,000  in 
Panic  of  1895.  January,  1895.  There  was  a  "run"  on  the 
Treasury  for  the  first  time,  and  gold  was  paid 
out  at  the  rate  of  $3,000,000  per  day  and  would  have  gone 
much  faster  had  not  the  banks  refused  to  open  special  gold 
accounts  with  their  customers.  $33,000,000  was  taken  out 
that  was  not  wanted  for  exportation.  Something  else  must 
be  done  than  to  sell  bonds  in  job  lots,  since  the  public  were 
in  a  frame  of  mind  to  present  for  redemption  every  green- 
back and  Treasury  note  outstanding.  Nothing  could  stop 
this  except  evidence  that  the  foreign  demand  for  gold  had 
come  to  an  end.  It  did  come  to  an  end  early 
in  Februai7-  A  financial  achievement  had 
been  effected,  without  a  parallel  in  our  history 
and  equaled  only  by  the  quelling  of  the  Baring  panic  in 
1890  by  the  London  syndicate,  with  the  Bank  of  England  at 
its  head.  A  contract  had  been  made  between  the  Secretary 
of  the  Treasury  and  a  syndicate  of  bankers  in  New  York 
and  London  for  the  purchase  by  the  former  of  3,500,000 
ounces  of  gold  coin  equal  to  $65,117,500  (at  least  one  half 
to  be  obtained  from  Europe)  to  be  paid  for  with  4  per  cent 
30-year  bonds,  to  be  taken  at  such  a  premium  as  should  yield 
3^  per  cent  interest  per  annum.  The  amount  of  bonds 
was  $62,317,500,  and  the  price  received  by  the  govern- 
ment was  104.49.  These  bonds  were  authorized  by  the 
Act  of  July  14,  1870,  and  were  made  payable  in  "coin," 
the  only  coin  then  known  to  American  commercial  usage 
being  gold  coin.  Doubts  having  been  raised  by  silver 
agitators,  in  and  out  of  Congress,  touching  the  ambiguity  of 
the  word  coin,  and  these  doubts  having  considerable  in- 


212  REPRESENTATIVE  MONEY. 

fluence  abroad,  the  syndicate  offered  to  accept  3  per  cent 
interest  instead  of  3*^,  if  Congress  would  within  ten  days 
make  these  bonds  specifically  payable  in  gold.  President 
Cleveland  sent  the  contract  to  the  House  and  recommended 
that  this  change  be  made,  since  it  would  save  about 
$16,174,770  in  interest  during  the  time  the  bonds  have  to 
run.  The  House  debated  this  very  simple  proposition  two 
days  and  then  rejected  it  (February  i4th)  by  yeas  120, 
nays  167. 

The  most  important  part  of  the  contract  was  the  fifth 
clause,  which  was  in  these  words  :  "  In  consideration  of  the 
purchase  of  such  coin,  the  parties  of  the  second  part  and 
their  associates  hereunder  assume  and  will  bear  all  the  ex- 
pense and  inevitable  loss  of  bringing  gold  from  Europe 
hereunder ;  and,  as  far  as  lies  in  their  power,  will  exert  all 
financial  influence  and  will  make  all  legitimate  efforts  to  pro- 
tect the  Treasury  of  the  United  States  against  the  withdrawals 
of  gold,  pending  the  complete  performance  of  this  contract" 

This  was  the  most  scientific  part  of  the  transaction.  It 
aimed  to  stop  withdrawals  of  gold  at  the  same  time  that  it 
brought  in  a  new  supply.  The  syndicate  was 
a^e  to  contr°l  tne  rate  °f  foreign  exchange 
for  a  time  so  that  gold  could  not  be  ex- 
ported at  a  profit.  It  is  doubtful  if  any  other  group  of 
men  in  the  world  could  have  accomplished  this  feat.  The 
importance  of  it  is  beyond  estimation,  since  it  arrested  a 
panic,  the  consequences  of  which  nobody  can  depict  any 
more  than  he  can  tell  how  far  a  prairie  fire  will  spread  after 
it  is  once  started.  It  is  not  worth  while  to  enter  into  the 
bitter,  but  short-lived  controversy  which  this  contract  pro- 
duced. 


THE  "CRIME  OF  1873." 


CHAPTER    IX. 

THE  "CRIME  OF  1873." 

THERE  has  been  a  renewal  lately  of  the  charge  that  the 

coinage    act   of    1873   was    passed    secretly.     It    becomes 

necessary,  therefore,  to  reexamine  the  foun- 

CoinageAct          dations   of  such  charge.     It  is  not  generally 

or  18  7*3  • 

easy  to  prove  a  negative,  but  it  can  be  done 
in  this  case,  because  there  is  no  way  to  pass  a  law  secretly 
in  the  Congress  of  the  United  States.  Every  bill  must  be 
printed  and  must  be  read  publicly  in  each  branch.  These 
proceedings  are  incompatible  with  secrecy.  It  has  been 
shown  already  that  this  bill  was  printed  thirteen  times  by  the 
Treasury  Department  and  by  Congress  and  that  the  pro- 
ceedings on  it  occupy  144  columns  of  the  Congressional 
Globe,  which  was  published  daily  during  the  session. 

When  this  charge  is  disproved,  it  is  varied  slightly  by 
saying  that  the  demonetization  of  silver  was  accomplished 

silently,  by  the.  mere  omission  of  the  dollar 
Bill  not  passed  from  the  jist  of  authOrized  coins,  and  that  this 
secretly* 

omission  was  not  noticed.     But  the  clause  in 

question  was  not  a  mere  omission  jof  one  coin  from  a  list  of 
coins.  As  the  bill  passed  the  House  (May  27,  1872)  the 
clause  was  in  these  words  : 

"That  the  silver  coins  of  the  United  States  shall  be  a 
dollar,  a  half-dollar,  or  fifty-cent  piece,  a  quarter-dollar,  or 
twenty-five-cent  piece,  a  dime  or  ten-cent  piece;  and  the 
weight  of  the  dollar  shall  be  384  grains;  the  half-dollar, 
quarter-dollar  and  dime  shall  be  respectively  one-half,  one- 
quarter  and  one-tenth  of  the  weight  of  said  dollar,  which 
coins  shall  be  a  legal  tender  for  their  nominal  value  for  any 
amount  not  exceeding  five  dollars  in  any  one  payment." 


214  REPRESENTATIVE  MONEY. 

Another  section  of  the  bill  provided  that  no  other  silver 
coins  than  these  should  be  issued  from  the  mint,  and  a  third 
section  provided  that  the  gold  dollar  should  be  the  unit  of 
value. 

This  was  sufficient  to  call  attention  to  the  fact  that  no  sil- 
ver coins  hereafter  made  should  be  legal  tender  for  more 
than  five  dollars.  But  attention  was  called  to  it  in  other 
ways.  Four  members  of  the  House  (Clarkson 
N'  Potter>  W-  L-  Stoughton,  Samuel  Hooper 
and  Wm.  D.  Kelley)  discussed  the  omission  of 
the  silver  dollar  and  the  consequent  establishment  of  the 
single  gold  standard  on  the  9th  of  April,  1872. 

Mr.  Hooper  said  :  "As  the  value  of  the  silver  dollar  de- 
pends on  the  market  price  of  silver,  which  varies  according 
to  the  demand  and  supply,  it  is  now  intrinsically  worth,  as 
before  stated,  about  three  cents  more  than  the  gold  dollar. 
By  the  act  of  January  18,  1837,  the  standard 
Mr.  Hooper.  of  the  silver  coins  was  increased  to  nine 
hundred  thousandths  fine,  which  reduced  the 
weight  of  the  dollar  from  four  hundred  and  sixteen  to  four 
hundred  and  twelve  and  a  half  grains ;  the  amount  of  pure 
silver,  however,  remained  the  same,  namely,  three  hundred 
and  seventy-one  and  one-fourth  grains.  The  committee, 
after  careful  consideration,  concluded  that  twenty-five  and 
eight-tenths  grains  of  standard  gold  constituting  the  gold 
dollar  should  be  declared  the  money  unit  or  metallic  representa- 
tive of  the  dollar  of  account "  —  Congressional  Globe,  2d  Session, 
42 d  Congress,  page  2305. 

"  Section  sixteen  reenacts  the  provisions  of  existing  laws 
defining  the  silver  coins  and  their  weights  respectively,  ex- 
cept in  relation  to  the  silver  dollar,  which  is  reduced  in 
weight  from  four  hundred  and  twelve  and  a  half  to  three 
hundred  and  eighty-four  grains,  thus  making  it  a  subsidiary 
coin  in  harmony  with  the  silver  coins  of  less  denomination,  to 


THE  "CRIME  OF  1873."  215 

secure  its  concurrent  circulation  with  them.  The  Silver  dol- 
lar of  four  hundred  and  twelve  and  a  half  grains,  by  reason 
of  its  bullion  or  intrinsic  value  being  greater  than  its  nominal 
value,  long  since  ceased  to  be  a  coin  of  circulation,  and  was 
melted  by  manufacturers  of  silverware.  It  does  not  circu- 
late now  in  commercial  transactions  with  any  country,  and 
the  convenience  of  those  manufacturers  in  this  respect  can 
better  be  met  by  supplying  small  standard  bars  of  the  same 
standard,  avoiding  the  useless  expense  of  coining  the  dollar 
for  that  purpose.  The  coinage  of  the  half-dime  is  discon- 
tinued for  the  reason  that  its  place  is  supplied  by  the  cop- 
>er-nickel  five-cent  piece,  of  which  a  large  issue  has  been 
made,  and  which,  by  the  provisions  of  the  act  authorizing 
its  issue,  is  redeemable  in  United  States  currency." 
Ibid:,  page  2306. 

Mr.  Stoughton  said  :  "  Aside  from  the  three-dollar  gold 
piece,  which  is  a  deviation  from  our  metrical  ratio,  and 
therefore  objectionable,  the  only  change  in  the  present  law 
is  in  more  clearly  specifying  the  gold  dollar 

:.  Stoughton.     as  the  unit  of  value.     This  was  probably  the 
intention    and   perhaps    the    effect  of  act   of 

[arch  3,  1849,  but  ^  ought  not  to  be  left  to  inference  or 

iplication.  The  value  of  silver  depends,  in  a  great  meas- 
ire,  upon  the  fluctuations  of  the  market,  and  the  supply  and 
lemand.  Gold. is  practically  the  standard  of  value  among 
ill  civilized  nations,  and  the  time  has  come  in  this  country 

then  the  gold  dollar  should  be  distinctly  declared  to  be  the  coin 
representative  of  the  money  Unit.'1'1  —  Ibid.,  page  2308. 

Mr.  Potter  said  :  "Then,  in  the  next  place,  this  bill  pro- 
ddes  for  the  making  of  changes  in  the  legal  tender  coin  of 

le  country,  and  for  substituting,  as  legal  tender,  coin  of  only 
metal  instead  as  heretofore  of  two.     I   think  myself  this 

/ould  be   a  wise  provision,  and  that  legal  tender  coins,  ex- 

ipt  subsidiary  coins,   should  be  of  gold   alone ;  but  why 


216  REPRESENTATIVE  MONEY. 

should  we*  legislate  on  this  now  when  we  are  not  using  either 
of  those  metals  as  a  circulating  medium?     The  bill  provides 
also  for  a  change  in  respect  of  the  weight  and 
Mr.  Potter.  value  of  the  silver  dollar,  which  I  think  is  a 

subject  which,  when  we  come  to  require  legis- 
lation at  all,  will  demand  at  our  hands  very  serious  con- 
sideration, and  which,  as  we  are  not  using  such  coin  for  cir- 
culation now,  seems  at  this  time  to  be  an  unnecessary  sub- 
ject about  which  to  legislate."-  —  Ibid.,  page  2310. 

Mr.  Kelley  said :  "I  wish  to  ask  the  gentleman  who  has 
just  spoken  (Mr.  Potter)  if  he  knows  of  any  government  in 
the  world  which  makes  its  subsidiary  coinage  of  full  value  ? 
The  silver  coin  of  England  is  ten  per  cent  below  the  value 
of  gold  coin.  And,  acting  under  the  advice 
Mr.  Kelley.  of  the  experts  of  this  country,  and  of  England 
and  France,  Japan  has  made  her  silver  coinage, 
within  the  last  year,  twelve  per  cent  below  the  value  of  gold 
coin,  and  for  this  reason  :  //  is  impossible  to  retain  the  double 
standard.  The  values  of  gold  and  silver  continually  fluc- 
tuate. You  cannot  determine  this  year  what  will  be  the 
relative  values  of  gold  and  silver  next  year.  They  were 
fifteen  to  one  a  short  time  ago ;  they  are  sixteen  to  one 
now. 

"Hence  all  experience  has  shown  that  you  must  have  one 
standard  coin,  which  shall  be  a  legal  tende.r  for  all  others, 
and  then  you  may  promote  your  domestic  convenience  by 
having  a  subsidiary  coinage  of  silver,  which  shall  circulate  in 
all  parts  of  your  country  as  legal  tender  for  a  limited  amount, 
and  be  redeemable  at  its  face  value  by  your  government."  — 

Ibid.,  page  2316. 

ce°dnrSe.°f  Professor  Laughlin  has  compiled  the  follow- 

ing table  showing  the  course  of  procedure  on 
the  bill  in  Congress  : J 

1  Laughlin's  Bimetallism,  page  98. 


THE  "CRIME  OF  1873."  217 

PROCEDURE.  SENATE.         -  HOUSE. 

Submitted  by  Secretary  of  the  Treasury  April  25,  '70 
Referred  to  Senate  Finance  Committee  April  28,  '70 

500  copies  printed May     2,  '70 

Submitted  to  House June  25,  '70 

Reported  amended  and  ordered  printed  Dec.   19,  '70 

Debated Jan.      9,  '71 

Passed  by  vote  of  36  to  14    .     .     .     .  Jan.    10,  '71 
Senate  bill  ordered  printed    ....  Jan.    13,  '71 
Bill  reported  with  substitute   and  re- 
committed    Feb.   25,  '71 

Original  bill  reintroduced  and  printed  Mar.     9,  '71 

Reported  and  debated Jan.      9,  '72 

Recommitted Jan.    10,  '72 

Reported  back,  amended  and  printed  Feb.    13,  '72 

Debated April    9,  '72 

Amended  and  passed  by  a  vote  of  1 10 

to  13        May  27,  '72 

Printed  in  Senate May   29,  '72 

Reported,  amended  and  printed      .     .  Dec.    16,  '72 
Reported,  amended  and  printed      .     .  Jan.      7,  '73 

Passed  Senate Jan.    17,  '73 

Printed  with  amendments,  conference 

committee  appointed Jan.    21,  '73 

Became  a  law  Feb.  12,  1873. 

Moreover  documents  were  sent  to  the  House  and  Senate 
by  the  Secretary  of  the  Treasury,  Mr.  Boutwell,  calling  atten- 
tion particularly  to  this  feature  of  the  bill,  and  these  docu- 
ments were  printed  and  laid  on  the  desks  of  members. 
They  were  also  sent  to  Boards  of  Trade  and  Chambers  of 
Commerce,  professors  in  colleges  and  other  persons  who 
were  supposed  to  take  an  interest  in  such  matters,  in  order 
to  get  their  opinions.  These  proceedings  are  not  consistent 
with  the  idea  of  secrecy  or  of  silence. 

When  this  charge  falls  to  the  ground  it  is  said  that  "  the 
people"  had  a  right,  which  was  taken  from  them  without 


218  REPRESENTATIVE  MONEY. 

their  knowledge,  by  the  coinage  act  of  1873,  meaning  the 

right  to  pay  their  debts  with  silver  dollars  instead  of  gold 

ones.     If  they  had  such  a  right  it  was  not  a 

People  "  want  valuable  one  at  that  time>  since  the  silver  dollar 
was  then,  and  had  been  for  40  years,  worth 
more  than  the  gold  one.  But  how  are  we  to  know  what 
"the  people"  want  at  any  particular  time?  There  is  no  way 
to  bring  them  together  in  mass  meeting.  Is  there  any  other 
way  of  learning  what  they  want  than  by  observing  the  action 
of  the  only  organ  appointed  to  express  their  wants  ?  This 
organ  is  the  Congress  of  the  United  States,  which  enacted 
this  law  by  a  vote  unanimous  in  one  branch  and  nearly 
unanimous  in  the  other,  and  has  neglected  during  twenty- 
two  years  to  remonetize  silver,  but  has  four  times  rejected 
motions  for  that  purpose  in  the  House  of  Representatives. 
•  Rights  are  either  legal  or  moral.  In  which  category  does 
this  right,  of  which  the  people  are  said  to  have  been  de- 
prived, ia  1873,  fall?  If  it  was  a  legal  right  it  depended 
upon  an  antecedent  law  of  Congress  and  when  Congress 
changed  the  law,  it  ceased  to  be  a  legal  right.  Was  it  a 
moral  right  ?  To  say  that  a  moral  right  exists 

to  make  4I2^  grains  of  silver  leSal  tender  for 
a  dollar  in  spite  of  laws  which  forbid  it,  is  a 
gross  exaggeration  of  moral  rights.  At  the  utmost  it  is  a 
right  to  work  for  such  a  change  in  the  law  as  will  accomplish 
the  desired  end.  Others  have  an  equal  right  to  oppose  the 
change,  especially  if  they  think  that  it  would  be  dishonest. 

The  law  of  1873  was  not  passed  surreptitiously,  or  secretly, 

or  without  due  consideration.     Some  of  .the   hottest  silver 

men  were  members  of  Congress  at  that  time 

and  VOted  f°r   iL      The>"   afterwards  said  that 
they  were  deceived,  but  they  never  would  have 

thought  so  if  silver  had  not  declined  in  value.     The  silver 
dollar  was  an  obsolete  coin.     Not  one  man  in  ten  of  mature 


THE  "CRIME  OF  1873."  219 

years  had  ever  seen  one.  It  was  worth  two  cents  more  than 
the  gold  dollar.  Nobody  could  then  anticipate  that  it  would 
ever  be  worth  less  than  the  gold  dollar. 

The  law  of  1873  was  enacted  by  the  people  of  the  United 
States,  in  the  only  way  they  ever  enact  a  law.     It  has  re- 
mained on  the  statute  book  nearly  a  quarter  of  a  century. 
Silver  has  fallen  as  compared  with  gold  more  thap  one-half. 
During  this  interval  all  the   business  of  the 

mGowSdi-d  nation  has  been  adJusted  to *he  gold  standard. 
Indeed  it  had  been  on  that  standard  in  prac- 
tice ever  since  1834,  except  during  the  suspension  of  specie 
payments.  The  whole  of  the  national  bonded  debt  had  been 
contracted  on  the  gold  basis,  in  law  as  well  as  in  fact,  hav- 
ing been  refunded  subsequently  to  the  act  of  1873. 

Now  it  is  proposed  to  change  the  character  of  the  dollar 
so  that  public  and  private  debts  may  be  paid  with  half  of 
what  was  promised.  That  is  so  manifestly 
dishonest  that  when  the  advocates  of  the 
policy  are  pushed  pretty  sharply  they  say  that 
prices  have  fallen  so  that  the  half-dollar  is  worth  as  much  as 
the  whole  dollar  was  in  1873.  We  have  already  looked  into 
that  matter  ; *  but  suppose  it  were  true.  What  about  debts 
that  were  contracted  on  the  gold  basis  yesterday?  There 
has  been  no  great  decline  in  the  prices  of  commodities  in 
that  time.  Moreover  people  did  not  agree  to  pay  and  re- 
ceive commodities,  but  dollars.  The  question,  in  the  forum 
of  morals,  is  not  what  a  dollar  will  buy,  but  what  a  dollar  is. 
A  time  may  come  when  a  dollar  will  not  buy  as  many  useful 
things  as  it  would  in  1873.  A  succession 
°^  great  wars,  droughts,  floods,  fires,  a  shortage 
of  coal,  anything  which  causes  scarcity  in 
place  of  abundance,  would  have  that  effect.  Suppose,  in 
that  case,  that  creditors  should  say  that  when  they  made 

1  Page  no. 


220  REPRESENTATIVE  MONEY. 

their  contracts  a  dollar  would  buy  twice  as  many  useful 
articles  as  it  will  now,  and  should  ask  Congress  to  pass  a 
law  making  the  dollar  twice  as  large  as  before.  What  sort 
of  answer  would  they  receive  ?  The  fitting  answer  would  be 
that  the  government  had  chosen  the  most  stable  thing  it 
could  find  to  serve 'as  the 'material  for  the  dollar;  that  it 
never  intended  to  guarantee  the  purchasing  power  of  the 
dollar  in  terms  of  any  other  article  or  articles,  and  that  an 
attempt  to  do  so  in  the  interest  of  a  class 
rf^Jf  FetBt  would  be  dishonest.  Equally  dishonest  is  the 
demand  that  the  dollar  be  changed  in  the  in- 
terest of  another  class.  It  is  not  intended  to  say  that  per- 
sons who  advocate  this  policy  are  generally  dishonest.  Like 
a  person  surveying  a  landscape  in  a  pool  of  water  they  see 
the  forms  of  things  perfectly,  but  they  are  wrong  side  up. 

Those  who  say  that  the  coinage  act  of  1873  was  passed 
secretly  and  surreptitiously,  in  spite  of  all  the  proofs  to  the 
contrary,  must  be  considered  dishonest.  One  of  the  charges 
repeated  year  after  year  was  that  a  man  named 
Ernest  Seyd  came  to  this  country  from  Eng- 
land in  1873,  bringing  ,£100,000  sterling  with 
which  he  bribed  Congress  to  pass  the  law  demonetizing 
silver.  The  only  foundation  for  this  fable  was  that  the  Hon. 
Samuel  Hooper  said,  when  introducing  the  bill  in  the  House, 
April  9,  1872  : 

"  Mr.  Ernest  Seyd  of  London,  a  distinguished  writer,  who 
has  given  great  attention  to  the  subject  of  mints  and  coin- 
age, after  examining  the  first  draft  of  the  bill,  furnished  many 
valuable  suggestions,  which  have  been  incorporated  in  this 
bill."  •  —  Congressional  Globe,  page  2304. 

On  this  foundation  the  whole  superstructure  of  Seyd's 
mission  of  bribery  and  corruption  was  built.  All  who  had 
any  real  acquaintance  with  the  subject  knew  that  the  story 
must  be  false,  because  Mr.  Seyd  was  a  bimetallist,  his  writings 


THE  "  CRIME  OF  1873."  221 

on  that  subject  being  well  known.     They  did  not  know  how 

false  it  was,  however,  until  Senator  Hoar  of  Massachusetts, 

on   the    22d    of   August,    1893,    produced   in 

BimetSist  the  Senate  the  verv  letter  written  by  Seyd 
to  Hooper  in  1873,  in  which,  among  other 
things,  he  strongly  urged  Mr.  Hooper  not  to  agree  to  the 
clause  of  the  bill  demonetizing  silver.  About  the  same  time 
that  Mr.  Hoar  made  this  exposure  the  son  and  brother  of 
Mr.  Seyd  (then  deceased)  wrote  a  letter  jointly  to  the  New 
York  Evening  Post  taking  notice  of  the  assault  upon  his 
memory,  denying  the  charge  in  every  particular,  and  declar- 
ing that  Mr.  Seyd  had  not  been  in  the  United  States 
since  1856.  Even  this  did  not  make  an  end  of  the  vile 
slander,  for  presently  certain  newspapers  printed  the  extract; 
from  Mr.  Hooper's  speech,  quoted  above,  and  inserted  in  it, 
after  the  word  "  writer  "  the  words  "  is  now  here,"  where- 
upon they  exclaimed  that  the  letter  from  the  two  relatives  of 
Mr.  Seyd  in  London,  being  false  in  one  part,  was  probably 
false  in  all.  Senator  Hoar,  on  the  28th  of 
September,  1893,  exposed  this  new  falsehood 
by  reading  from  the  Congressional  Globe  of 
the  date  named  the  passage  of  Mr.  Hooper's  speech  referred 
to  and  showing  that  the  words  "  is  now  here  "  were  not  con- 
tained in  it,  but  had  been  deliberately  forged  by  some 
scoundrel  in  order  to  brand  the  Congress  of  his  country  as 
corrupt  and  infamous.  Since  that  time  the  myth  of  Ernest 
Seyd  has  been  fading,  but  the  greater  one  implying  that  the 
act  of  1873  was  passed  secretly  has  been  adhered  to  because 
it  was  really  indispensable  to  the  myth-makers. 

If  a  bill  that  was  before  Congress  two  years  and  ten 
months  and  was  printed  thirteen  times,  was  passed  secretly, 
how  could  one  be  passed  openly?  But,  say  the  accusers  of 
Mr.  Seyd  and  the  Congress  of  1873,  we  did  not  understand 
Perhaps  not.  How  many  of  the  bills  passed  by  the  last 


222  REPRESENTATIVE  MONEY. 

Congress  did  you  understand  while  they  were  pending  ? 
Science  has  not  devised  any  means  to  compel  people  to  know 
what  is  going  on  in  Congress.  The  difficul- 
^es  °^  f°rcing  such  knowledge  upon  ten  or 
twelve  millions  of  voters,  large  numbers  of 
whom  do  not  speak  English,  or  read  and  write  any  language, 
and  still  larger  numbers  of  whom  know  nothing  of  finance, 
are  quite  appalling.  Even  in  the  case  of  well  educated 
persons  it  would  be  a  herculean  task  to  make  them  under- 
stand all  the  bills  before  Congress.  They  might  think  that 
they  understood  them  when  they  did  not.  Something  of 
this  kind  actually  happened  in  connection  with  the  coinage 
act  of  1873.  The  Hon.  William  D.  Kelley,  as  we  have 
Seen,  took  part  in  the  debate  on  the  clause  dropping  the 
silver  dollars  from  the  list  of  coins  (April  9,  1872),  and  de- 
fended that  clause  on  the  ground  that  it  was  impossible  to 
retain  the  double  standard.  He  afterwards  said  in  the 
House  (March  9,  1878)  that  he  did  not  understand  this  par- 
ticular part  of  the  bill.  Many  shifty  politicians  said  the 
same  thing.  Senator  Stewart  of  Nevada  voted  for  the  bill 
on  its  first  passage  through  the  Senate  January  10,  1871. 
He  was  present  when  it  passed  the  second  time  without  a 
division,  January  17,  1873. 

Our  forefathers,  seeing  that  they  could  not  force  all  the 
people  to  understand  all  the  bills  before  Congress  at  all 
times,  wisely  provided  that  such  antecedent  knowledge 
should  be  dispensed  with,  but  they  gave  facilities  for  such 
knowledge  to  all  who  might  desire  to  obtain  it.  Persons 
who  neglect  these  facilities  must  not  impute  their  own'inat- 
tention  as  a  crime  to  other  people.  That  is  what  the 
"crime  of  1873  "  consists  of. 

Eventually  the  proposed  dollar  of  384  grains,  which  had 
been  inserted  in  the  bill  because  it  was  exactly  the  weight 
of  two  half-dollars,  and  almost  exactly  the  weight  of  the 


THE  "  CRIME  OF  1873."  223 

French  five-franc  piece,  was  stricken  out  and  the  trade  dollar 
of  420  grains  was  inserted  in  its  place.  This  was  a  coin 

intended  to  circulate  in  China.  It  was  con- 
The  Trade  sidered  a  convenient  mode  of  selling  American 

silver  to  Oriental  countries,  and  was  made 
a  trifle  heavier  than  the  Mexican  dollar  in  order  to  supersede 
that  coin  in  the  far  East.  Holders  of  silver  bullion  were 
allowed  to  deposit  it  at  the  Mint  and  have  it  coined  into 
trade  dollars  for  their  own  account,  but  it  was  provided  that 
no  other  deposit  of  silver  from  private  persons  should  be 
received  for  coinage.  Although  it  was  never  intended  that 
the  trade  dollar  should  circulate  in  the  United  States  at  all, 
its  substitution  in  the  place  of  the  384-grain  dollar  placed  it 
inadvertently  in  the  list  of  coins  which  were  legal  tender  for 
five  dollars.  Then  followed  a  droll  succession  of  stumbles 
and  blunders.  As  soon  as  the  price  of  silver  fell  so  that  420 

grains  were  worth  less  than  a  dollar,  it  became 
Result6^60161  Prontable  for  owners  of  silver  to  have  these 

dollars  coined  and  put  in  circulation  at  home. 
Straightway  they  began  to  fill  the  channels  of  retail  trade. 
They  became  such  a  nuisance  that  Congress  in  1876  took 
away  their  legal  tender  quality  altogether.  This  led  to  a 
dispute  and  a  charge  of  bad  faith.  So  Congress  in  1878 
discontinued  the  trade  dollar  coinage  entirely.  This  only 
aggravated  the  dispute.  Speculators  bought  up  the  trade 
dollars  on  the  expectation  that  the  government  would 
eventually  redeem  them  at  par.  Nearly  $2,000,000  of  them 
were  reimported  from  China  for  that  purpose.  Finally,  in 
1887,  Congress  passed  a  bill  to  redeem  at  par  all  that  should 
be  presented  within  six  months,  and  President  Cleveland 
allowed  it  to  become  a  law  without  his  signature. 


224  REPRESENTATIVE  MONEY. 


CHAPTER   X. 

GENERAL  CONCLUSIONS. 

THE  reader  who  has  penetrated  thus  far  into  the  labyrinth 
of  our  silver  legislation  will  need  a  clue  in  order  to  get  back 
to  daylight.  It  is  easily  supplied.  The  various  kinds  of 
money  in  circulation,  exclusive  of  subsidiary  coins,  fall  into 
two  classes,  namely : 

MONEY.  REPRESENTATIVE  MONEY.        AMOUNT. 

Gold  f  i    Greenbacks      ....     $346,681,016 

2    Treasury  notes      .     .     .       152,584,417 

Fiat  Money  1  3    silyer  d()llars   _     _         57,029,743 

1^4    Silver  certificates  .     .     .       337,148,504 

Total  Fiat  Money   .     $893,443,680 
5    National  Bank  Notes     .       206,854,787 

All  the  things  in  the  right-hand  column  are  issued  by  the 
government,  and  are  fiat  money,  except  the  national  bank 
notes.  It  is  customary  to  say  that  the  various  things  com- 
posed of,  or  based  on,  silver  (numbered  2,  3,  and  4)  are 
real  money  to  some  extent,  because  of  the  metallic  value  of 
the  silver  dollar.  This  is  true  only  in  case 
the  government  is  at  liberty  to  sell  the  silver. 
There  is  no  law  authorizing  the  Secretary  of 
the  Treasury  to  do  this.  Strike  out  from  the  list  of  repre- 
sentative money  numbers  2,  3,  and  4,  and  write  greenbacks 
in  place  thereof,  and  assume  that  the  government  has  cer- 
tain assets  of  uncertain  value  composed  of  white  metal,  some 
of  it  stamped  and  some  unstamped,  then  you  know  every- 
thing that  can  be  known  about  the  multifarious  currency 
issued  by  the  government  of  the  United  States.  Silver 
dollars  are  metallic  greenbacks.  They  are  at  par  with  gold 


GENERAL  CONCLUSIONS.  225 

because  they  are  limited  in  amount  and  because  the  gov- 
ernment  receives  them  as  the  equivalent  of  gold  at  the 
Custom  House  and  the  tax-office.  The  receipts  of  the  gov- 
ernment are  about  $450,000,000  per  annum. 
The  amount  of  silver  dollars  and  silver  certifi- 
cates in  circulation  is  about  $400,000,000.  The 
holders  of  these  coins  and  certificates  can  realize  par  for 
them  by  paying  them  to  the  government.  If  they  do  not 
pay  these  they  must  pay  gold,  or  the  government's  gold 
notes.  Conversely,  if  the  government  did  not  receive  these 
it  would  receive  gold  or  its  own  gold  notes.  The  act  of 
July  14,  1890,  provides  not  merely  for  the  re- 
demPtion  of  the  Treasury  notes  in  gold  but 
for  keeping  "  the  two  metals  on  a  parity  with 
each  other  upon  the  present  legal  ratio."  Under  the  terms 
of  this  act  silver  dollars  are  as  much  entitled  to  redemption 
in  gold  as  anything  else  embraced  in  the  act,  but  the 
Treasury  Department,  during  President  Harrison's  adminis- 
tration, in  order  to  restrict  the  withdrawal  of  gold,  construed 
this  clause  of  the  law  as  applicable  only  to  the  Treasury 
notes,  and  this  construction  remains  unchanged.  One  of 
the  results  of  the  government's  discrimination  against  silver 
was  that  the  public  began  to  discriminate  against  it  also. 
Thus,  the  receipts  of  gold  at  the  Custom  House,  which  had 
been  87  per  cent  of  the  whole  in  December,  1890,  fell  grad- 
ually to  zero  in  July,  1894. 

The  nature  and  effects  of  fiat  money  have  been,  for 
the  most  part,  shown  in  preceding  chapters  by  concrete 
examples.  Supposing  that  it  is  always  re- 
****  deemable  in  gold,  it  is  nevertheless  incapable 
of  expansion  and  contraction  according  to  the 
wants  of  trade.  Its  volume  is  fixed,  first  by  law,  and  after- 
wards by  the  government's  collections  and  disbursements. 
Thus,  the  whole  amount  of  fiat  money  is  $893,443,680. 


226  REPRESENTATIVE  MONEY. 

Within  this  limit  the  amount  available  for  circulation  will  be 
more  or  less  according  to  what  the  government  takes  in  and 
pays  out ;  consequently  there  may  be  a  plethora  or  a  scarcity 
at  any  time,  regardless  of  the  real  needs  of  the  community. 
The  money  of  the  country  consists  of  all  the 
Inflexibility.  gold,  plus  all  the  other  instruments  of  ex- 
change which  are  redeemable  in  it.  It  fol- 
lows—  and  it  has  been  proved  by  abundant  examples  — 
that  a  scarcity  will  be  cured  after  some  delay  by  an  impor- 
tation of  gold  and  a  plethora  will  be  equally  corrected  by  an 
exportation  of  it. 

It  is  the  proper  business  of  banks  to  supply  a  deficiency 
and  to  redeem  and  retire  an  excess  of  the  circulating  medium, 
as  the  case  may  be.  There  is  a  general  understanding  of 
this  truth,  and  it  finds  expression  in  the  common  saying  that 
"the  government  ought  to  go  out  of  the  banking  business." 
Banking  implies  the  receiving  of  money  on  deposit  from 
certain  persons  and  the  lending  of  it  to  other  persons  for 
hire.  This  is  common  to  all  banks,  but  some 

a°BV2k.mentaS  banks  add  another  function  —  that  of  issuing 
and  redeeming  circulating  notes,  which  take 
the  place  of  metallic  money  in  the  community.  The  former 
of  these  functions  may  be,  and  often  is,  exercised  without 
the  latter,  but  the  latter  ought  never  to  be  exercised  without 
the  former,  because  there  is  no  means  of  testing  the  need«s 
of  the  community  for  instruments  of  exchange  except  by 
holding  them  at  the  service  of  the  bank's  depositors.  There 
is  no  other  way  for  bank  notes  to  get  out  of  the  bank  except 
as  they  are  taken  out  by  persons  who  have  the  right  to  draw 
checks  on  it.  These  are  the  depositors.  Each  depositor 
knows  exactly  how  many  bank  notes  he  needs.  He  will 
draw  out  no  more  or  no  less,  and  when  he  has  on  hand  any 
more  than  he  needs,  he  will  deposit  the  excess  in  the  bank. 
As  all  depositors  do  the  same,  the  needs  of  business  are 


GENERAL  CONCLUSIONS.  227 

answered  automatically.  As  the  government  has  no  such 
machinery,  it  has  no  means  of  squaring  the  volume  of  the 
currency  to  the  needs  of  business.  It  has  no  means  of 
knowing  what  the  needs  of  business  are,  and  if  it  had  any  it 
would  still  be  without  means  of  responding  to  them  except 
by  taking  a  vote  in  Congress.  After  taking  the  vote  it 
would  still  be  without  any  method  of  placing  the  money 
where  it  was  really  needed.  This  is  so  obvious  that  the 
advocates  of  fiat  money  almost  everywhere 

favor  the  $er  ca£ita  system-   The>r  say  that 

the  government  ought  to  issue  money  on  the 
basis  of  population.  They  would  not,  however,  apply  this 
rule  to  the  Apache  Indians.  Why  not  ?  Because  their 
business  is  not  like  our  business.  So  it  appears  that  the 
kind  of  business  should  be  taken  account  of  as  well  as  the 
number  of  people.  The  government  has  an  infallible  test 
for  the  number  of  the  people,  because  it  can  take  the  census, 
but  it  has  no  test  whatever  for  the  state  of  business.  Hence 
&<£ per  capita  method  is  as  ill  adjusted  to  trade  and  indus- 
try as  the  bed  of  Procrustes  was  to  the  size  of  its  various 
occupants. 

Another  and  fatal  objection  to  fiat  money  is  that  its  re- 
demption depends  largely  upon  the  public  revenue,  i.e.,  upon 
the  government's  balance  of  receipts  over  expenses.  If 
xpenses  are  greater  than  receipts  it  is  only  a  question  of 
ime  when  the  redemption  fund  will  be  encroached  upon, 
hen  the  question  is  raised  how  the  fund  shall  be  replen- 
ished. No  question  can  be  more  disastrous 
TreasuryttDeficit  to  Dusiness  interests  than  this.  A  few  years 
ago  nothing  seemed  more  improbable  than  a 
Treasury  deficit.  Yet  we  have  had  one  for  two  years  and 
have  been  obliged  to  borrow  largely  in  consequence,  and  the 
end  is  not  in  sight.  Business  men  are  in  a  chronic  state  of 
alarm  lest  the  government  should  not  be  able  to  redeem  its 


228  REPRESENTATIVE  MONEY. 

circulating  notes  in  gold,  or  lest  a  political  party  should 
come  into  power  on  a  platform  of  not  redeeming  them  at  all. 
There  can  be  no  real  business  stability  while  such  fears 
exist. 

Thus  the  redemption  of  fiat  money  is  always  liable  to  con- 
tingencie's.  The  government  may  not  be  able  at  all  times  to 
redeem  it.  The  government  may  not  be  willing  at  all  times 
to  redeem  it,  in  which  case  it  cannot  be  coerced,  or  fined,  as 
a  bank  may  be  for  a  similar  default.  The 
Uncertainty.  national  honor  is  a  very  poor  substitute  for  the 
sheriff  and  his  posse,  to  keep  specie  payments 
going,  because  so  many  people  have  to  be  consulted,  and 
because  different  views  prevail  as  to  what  the  national  honor 
requires.  We  have  had  some  recent  illustrations  of  this 
divergence  of  ideas  between  Congress  and  the  Executive. 
The  commercial  world  cannot  wait  for  the  settlement  of  con- 
flicting views  between  different  branches  of  the  government 
on  such  a  delicate  question.  Such  differences  tend  to  create 
panics  and  cause  runs  on  the  Treasury.  This  was  the 
situation  we  were  in  at  the  beginning  of  the  present  year. 
The  Treasury  was  within  three  days  of  suspension ;  that  is, 
of  bankruptcy.  Nothing  could  avert  that  catastrophe  except 
something  which  should  quiet 'the  public  mind.  A  mere 
addition  to  the  stock  of  gold,  unless  it  were  equal  to  the 
whole  amount  of  fiat  money  outstanding,  would  have  been 
utterly  futile.  The  one  thing  needful  was  a 
Panic  of  1895.  replenishment  of  gold  accompanied  by  a  fall 
of  sterling  exchange,  which  should  signify  that 
gold  shipments  had  stopped.  A  replenishment,  with  gold 
shipments  continuing,  would  have  been  a  mere  prolongation 
of  the  panic. 

There  is  a  vast  amount  of  floating  capital  in  the  modern 
world  which  seeks  investment  on  call,  or  short  time.  It  may 
be  at  New  York  to-day,  at  London  a  month  hence,  at  Paris, 


GENERAL  CONCLUSIONS.  229 

Berlin,  Vienna,  Amsterdam,  or  other  places,  at  short  inter- 
vals, or  divided  among  all  of  them.  It  is  capable  of  being 
transmuted  into  gold  and  sent  hither  and  thither  at  short 
notice.  A  very  slight  inducement  will  cause  it  to  be  turned 
this  way  or  that  way.  It  is  always  on  the  alert  to  make  a 
profit  or  to  avoid  a  loss,  especially  the  latter.  It  was  this 
sort  of  capital  that  was  taking  wings  and  leaving  our  shores, 
accompanied  by  a  considerable  amount  of  American  capital 
in  the  same  liquid  state,  last  winter.  The 
February  contract  stopped  the  panic  because 
the  owners  of  this  floating  capital  knew  that 
the  syndicate,  in  addition  to  delivering  the  gold  contracted 
for,  could  control  the  rate  of  foreign  exchange  for  a  while, 
thus  giving  excited  people  time  to  cool  off.  It  was  not  the 
least  desirable  feature  of  the  contract  that  it  extended  over 
a  period  of  ten  months.  This  was  much  better  than  the 
payment  of  the  whole  sum  into  the  Treasury  at  once,  since 
the  main  object  was  to  enable  people  to  forget  their  fears. 
Whether  the  contract  will  yield  a  net  profit  to  the  syndicate 
is  not  yet  known.  It  is  to  be  hoped  that  it  may,  but  the 
question  is  not  to  be  settled  by  a  mere  comparison  of  the 
issue  price  of  the  bonds  and  the  present  market  quotations. 
It  is  desirable  that  the  syndicate  should  make  a  profit  be- 
cause we  may  be  in  similar  straits  and  need  help  at  some 
future  time.  In  any  case  the  profit  to  the  buyers  of  the 
bonds  is  a  bagatelle  in  comparison  with  the  enormous  and 
incalculable  damage,  public  and  private,  resulting  from 
national  bankruptcy.  The  whole  affair  instructs  us  to  take 
the  government  out  of  the  banking  business  as  soon  as  pos- 
sible, since  the  maintenance  of  the  ultimate  gold  reserve  of 
the  country  is  a  banking  and  not  a  governmental  function. 

How  much  gold  is  needed  to  keep  all  of  our  fiat  money 
at  par  can  be  determined  only  by  experiment.  Fifteen 
years  ago  we  accumulated  one  hundred  millions  of  gold  to 


230  REPRESENTATIVE  MONEY. 

guarantee  redemption  of  about  three  hundred  and  fifty  mil- 
lions of  greenbacks.  This  was  the  proportion  which  pru- 
dent financiers  judged  to  be  necessary.  The 
redemption  fund  was  about  30  per  cent  of 
the  paper  to  be  redeemed.  We  have  gone 
on  from  that  day  to  this  adding  to  our  stock  of  fiat  money, 
partly  silver  dollars,  partly  treasury  notes,  till  we  have 
piled  six  hundred  millions  on  top  of  the  original  three 
hundred  and  fifty  millions.  We  have  now  nearly  one  thousand 
millions  resting  on  a  diminished  gold  reserve,  the  re- 
demption fund  being  only  6  per  cent  of  the  fund  to  be  re- 
deemed. 

Even  this  does  not  tell  the  whole  story.  Bank  liabilities 
of  all  kinds  are  payable  in  gold  ;  and  the  deposits  constitute 
a  far  more  pressing  demand  for  gold,  when  a  demand  comes, 
than  circulating  notes,  since  the  latter  are  presumably  per- 
forming a  necessary  office  in  the  community  and  are  not 
easily  collected.  When  a  depositor  wants  gold  he  does  not 
stop  to  collect  greenbacks  in  order  to  obtain  it.  He  draws 
his  check  and  asks  for  gold.  The  bank  can  pay  legal  tender 
notes  if  it  chooses  to  do  so,  but  it  will  generally  pay  gold 
because  it  desires  to  accommodate  its  customers.  It  is  im- 
material whether  the  customer  himself  takes  the  greenbacks 
to  the  sub-treasury  and  draws  gold,  or  whether 

Bank  Deposits       the  bank  does  this  for  him.     The  bank  may 
Payable  in  Gold  .         .  * 

als0t  refuse   to  perform   the   service   in  a  time  of 

panic  in  order  to  check  a  run,  but  ordinarily 
it  will  perform  it.  So,  as  a  matter  of  fact,  bank  deposits 
must  be  counted  among  the  things  which  rest  on  the  gold 
reserve  of  the  country,  but  the  gold  reserve  of  the  banks 
must  be  taken  into  the  account  also.  This  is  really  larger 
than  that  of  the  government,  although  the  drain  falls  first 
upon  the  latter  and  always  will  so  long  as  fiat  money  con- 
tinues. The  amount  of  deposits  in  national  and  state  banks 


GENERAL  CONCLUSIONS.  231 

is  about  $2,400,000,000,  and  the  amount  of  gold  held  by 
them  about  $208,000,000. 

The  greatest  objection  of  all  to  fiat  money  is  that  it  teaches 
people  to  believe  lies.  It  creates  the  belief  that  the  govern- 
ment can  make  money,  —  that  is,  real,  not  representative, 
money,  —  than  which  a  more  damaging  lie  never  gained 
lodgment  in  the  human  brain.  It  has  kept  political  parties 
in  hot  water  for  thirty  years.  It  is  an  obstacle  to  the 
nation's  progress  and  ought  to  be  put  out  of  its  misery  with- 
out further  delay. 

It  remains  to  notice  the  decisions  of  the  Supreme  Court 
of  the  United  States  on  the  subject  of  legal  tender  notes. 

In   the   case  of  Lane   County  vs.    Oregon 1 

Dec[srnsC(mrt  (December>  l868)> the  court  held  unanimously 
that  the  legal  tender  acts  of  1862  and  1863 
did  not  apply  to  taxes  imposed  by  the  authority  of  a  state, 
and  that  taxes  are  not  "  debts."  It  followed  that  if  a  state 
made  its  taxes  payable  in  gold  the  tax-payer's  obligation 
could  not  be  discharged  with  legal  tender  notes. 

In  Bronson  vs.  Rodes*  (December,  1868),  the  court  held 
that  a  contract  specifically  payable  in  gold  and  silver  coin 
could  not  be  discharged  by  a  tender  of  United  States  notes. 

§ere  was  one  dissenting  judge  in  this  case  (Miller). 
n  Butler  vs.  Horwitz,  immediately  following,  it  was  held 
t  a  contract  to  pay  a  certain  sum  in  gold  and  silver  coin 
is,  in  legal  effect,  a  contract  to  deliver  a  cer- 

G°ldorCc°eal)leCtS      tain  weight   of  gold   and  silver  of   a  certain 
fineness.     In  this  case  the  contract  had  been 


En* 
ma 


ade  in  1791  and  was  for  payment  in  "English  golden 
guineas."  It  was  held  in  this  case  that  damages  for  breach 
of  contract  should  be  assessed  in  coin  also. 

In  Hepburn  vs.  Griswold*  (December,  1869),  it  was  held 
by  five  judges  against  three  (the  opinion  of  the  court  being 
1  7  Wallace,  71.  2  7  Wallace,  229.  3  g  Wallace,  603. 


232  REPRESENTATIVE  MONEY. 

delivered  by  Chief  Justice  Chase),  that  the  making  of  notes 

or  bills  of  credit  a  legal  tender  in  payment  of  preexisting 

debts  is  not  a  means  appropriate,  plainly  adapted,  or  really 

calculated,  to   carry  into   effect   any  express 

power  vested  in  Congress,  is  inconsistent  with 

the  spirit  of  the  constitution  and  is  prohibited 

by  the  constitution.      Also  that  the  clause  in  the  acts  of 

1862   and  1863  which  makes  United  States  notes  a  legal 

tender  in  payment  of  all  debts,  public  and  private,  so  far  as 

it  applies  to  debts  contracted  before  the  passage  of  those 

acts,  is  unwarranted  by  the  constitution. 

The  judges  who  concurred  with  the  Chief  Justice  were 
Clifford,  Nelson,  Grier  and  Field.  The  dissenting  judges 
were  Miller,  Swayne  and  Davis. 

In  the  Legal  Tender  Cases  1  (December,  1870),  the  fore- 
going decision  was  reversed  by  five  judges  against  four. 
The   opinion  of   the    court  was  delivered  by 

The  Hepburn         Justice   Strong,  who  had   been   appointed   in 
Judgment  re-  .  T       .    '        . 

versed.  place  ot  Justice  Grier,  resigned.    A  new  mem- 

ber (Bradley)  had  been  added,  in  pursuance 
of  a  law  passed  by  Congress  in  April,  1869,  raising  the 
whole  number  of  judges  'to  nine.  The  reversal  of  the 
former  decision  was  a  great  shock  to  all  who  expect  per- 
manence in  the  judgments  of  the  court  of  last  resort.  The 
opinion  read  by  Justice  Strong  implied  that  the  power  of 
Congress  to  make  the  government's  notes  legal  tender  be- 
tween individuals  on  preexisting  contracts  was  an  incident 
and  consequence  of  the  war  power,  but  it  did  not  expressly 
say  so.  The  legal  points  of  the  opinion  will  not  be  con- 
sidered here,  but  some  attention  must  be  given  to  an  eco- 
nomical dictum  found  in  it,  viz. : 

"  It  is  hardly  correct  to  speak  of  a  standard  of  value. 
The  constitution  does  not  speak  of  it.  It  contemplates  a 

1  12  Wallace,  457. 


GENERAL  CONCLUSIONS.  233 

standard  for  that  which  has  gravity  or  extension,  but  value 
is  an  ideal  thing.  The  coinage  acts  fix  its  unit  as  a  dollar, 
but  the  gold  or  silver  thing  we  call  a  dollar  is 
in  no  sense  a  standard  of  a  dollar.  It  is  a 
representative  of  it.  There  might  never  have 
been  a  piece  of  money  of  the  denomination  of  a  dollar. 
There  never  was  a  pound  sterling  coined  until  1815  if  we 
except  a  few  coins  struck  in  the  reign  of  Henry  VIII, 
almost  immediately  debased,  yet  it  has  been  the  unit  of 
British  currency  for  many  generations.  It  is  thus  a  mistake 
to  regard  the  legal  tender  acts  as  either  fixing  a  standard 
of  value  or  regulating  money  values  or  making  that  money 
which  has  no  intrinsic  value." 

This  is  the  same  as  saying  that  there  could  be  a  dollar 
without  25T8Q  grains  or  any  other  quantity  of  gold,  without 
412^  grains  or  any  other  quantity  of  silver,  and  without  any 
substance  of  any  kind  or  amount  whatsoever. 
^  *kis  is  a  true  conception  of  money  we  can 
only  wonder  that  Congress  should  have  wasted 
so  much  time  in  specifying  the  weights  of  coins,  and  that 
the  human  race  should  have  wasted  so  much  labor  in  pro- 
curing the  material  to  represent  "an  ideal  thing,"  and  should 
continue  to  do  so.  If  what  the  judge  says  here  is  true, 
everything  in  this  book  relating  to  the  principles  of  money 
is  false. 

The  five  judges  who  concurred  in  this  opinion  were  Strong 
and  Bradley  in  addition  to  the  minority  in  the  Hepburn 
case.  Separate  dissenting  opinions  were  read  by  Chief 
Justice  Chase  and  by  Judges  Clifford,  Field  and  Nelson. 

In  Juillard  vs.  Greenman^-  (March,  1884)  it  was  held  that 
Congress  has  the  constitutional  power  to  make  the  treasury 
notes  of  the  United  States  a  legal  tender  in  payment  of 
private  debts  in  time  of  peace  as  well  as  in  time  of  war. 

1  no  U.  S.,  421. 


234  REPRESENTATIVE  MONEY. 

Also  that  legal  tender  notes  redeemed  and  reissued  under 
the  act  of  May  31,  1878,  are  a  legal  tender,   although  not 
expressly  made  so  by  that  act.     The  opinion 
Decision8  °^  t^ie  court  was  delivered  by  Justice   Gray, 

and  a  dissenting  one  was  written  by  Justice 
Field.  In  Justice  Gray's  opinion  we  find  the  following  state- 
ment : 

"  The  power,  as  incident  to  the  power  of  borrowing  money 
and  issuing  bills  or  notes  of  the  government  for  money 
borrowed,  of  impressing  upon  those  bills  or  notes  the  qual- 
ity of  being  a  legal  tender  for  the  payment  of  private  debts, 
was  a  power  universally  understood  to  belong  to  sovereignty 
in  Europe  and  America  at  the  time  of  the  framing  and  adop- 
tion of  the  Constitution  of  the  United  States." 

George  Bancroft,  the  historian,  reviewed  this  opinion  in 
both  its  legal  and  its  historical  aspects.1  Referring  to  the 
statement  quoted  above  he  declares  it  to  be 
" a  stuPendous  error,"  and  affirms  that  no 
such  power  was  understood  to  belong  to 
sovereignty  in  Europe  at  that  time,  i.e.,  in  1788.  It  is  not 
an  answer  to  Mr.  Bancroft  to  say  that  subsequently  revolu- 
tionary France  issued  assignats  and  made  them  legal  tender, 
and  that  the  Bank  of  England  was  authorized  to  suspend 
specie  payments,  since  the  point  in  dispute  is  whether  the 
framers  of  our  constitution  had  before  their  eyes  the  condi- 
tion of  things  in  Europe  which  Judge  Gray  affirmed  to  exist 
at  that  time.  Bank  of  England  notes  were  not  legal  tender 
in  1797  when  Parliament  passed  the  Restriction  act,  nor  did 
that  act  make  them  such. 

1  Page  149,  note. 


BOOK    II. 

BANKS. 

CHAPTER  I. 
FUNCTIONS   OF  A  BANK. 

A  BANK  is  a  manufactory  of  credit  and  a  machine  of 
exchange.  Mr.  H.  D.  Macleod's  analysis  of  the  mechanism 
of  banking1  is  substantially  this:  A  man  has  $5000  of  his  own 
money.  He  starts  a  bank.  His  neighbors  deposit  $45,000 
with  him.  This  money  becomes  the  absolute  property  of  the 
banker.  The  depositors  have  simply  a  right  to  withdraw  an 
equal  amount  whenever  they  like,  which  right  can  be  enforced 
by  law.  The  banker  owns  the  money  and  the  depositor  has 
a  claim,  or  right  of  action,  against  him  for  an  equal  sum. 
But  the  depositors  will  not  draw  the  money  out  immediately; 
if  they  had  intended  to  do  so  they  would  not 
have  deP°sited  *  at  all.  The  banker  finds  by 
experience  that  some  of  his  customers  will 
deposit  as  much  money  as  others  draw  out,  so  that  $50,000 
is  on  hand  all  the  time.  He  concludes  that  if  his  own 
$5000,  in  connection  with  his  good  reputation,  is  considered 
by  the  public  a  guarantee  for  $45,000,  then  the  whole  $50,000 
will  serve  as  a  guarantee  for  at  least  $200,000.  When  he 
begins,  his  balance  sheet  reads  in  this  way  : 

LIABILITIES.  ASSETS. 

Deposits,  $45,000.  Cash,  $50,000. 

1  Theory  and  Practice  of  Banking,  by  Henry  Dunning  Macleod,  5th 
ed.,  i,  324. 


236  REPRESENTATIVE  MONEY. 

He  now  begins  to  discount  the  commercial  paper  of  hi, 
customers  running  say  90  days  at  6  per  cent.  When  he  dis- 
counts a  bill  of  exchange  for  $1000  he  deducts  the  interest 
for  90  days  ($15)  and  credits  the  customer  the  remaindei 
($985)  on  his  books.  This  $985  is  called  a  deposit,  because 
the  customer  has  the  right  to  draw  it  out  by  his  check  exact!} 
as  he  could  draw  out  an  equal  sum  of  gold  deposited  by  him 
in  the  same  bank.  In  the  eye  of  the  banker,  and  of  the 

customer,  and  of  the  law  it  is  a  deposit.  In 
Deposits*8  and  ordinary  times  it  is  like  any  other  deposit. 

That  is,  the  proportion  remaining  uncalled  for 
at  any  time  will  be  about  the  same  as  the  proportion  of 
actual  money  deposited.  Yet  it  is  nothing  but  a  bank  credit. 
Hence  the  word  deposit,  when  thus  used,  is  clearly  a  mis- 
nomer since,  by  derivation  and  common  understanding,  a 
deposit  means  a  thing  laid  away,  or  given  in  charge  of  some- 
body. It  must  be  borne  in  mind,  therefore,  that  bank  deposits 
consist  of  two  different  things,  namely,  (i)  money,  (2)  bank 
credits,  and  that  the  latter  may  be  four  or  five  times  as  large 
as  the  former. 

The  process  continues  till  the  banker  has  $200,000  of 
discounted  bills  in  his  portfolio.  Then  his  accounts  stand 
thus: 

LIABILITIES.  ASSETS. 

Deposits     .     $242,000        Cash $50,000 

Profit     .     .  3,ooo         Loans  and  Discounts     .     200,000 

$245,000  $250,000 

This  is  Mr.  Macleod's  exposition  and  it  is  the  correct 
one.  It  follows  that  the  banker  has  manufactured  some- 
thing which  serves  as  a  medium  of  exchange  to  the  extent 
of  nearly  $200,000.  This  something  is  credit.  Goods 
can  be  bought  and  sold  with  it  as  readily  as  with  money, 
since  the  checks  drawn  against  these  deposits  are  universally 


FUNCTIONS  OF  A  BANK.  237 

:cepted.  The  whole  $200,000  of  bills  are  not  discounted 
a  lump,  but  gradually,  so  that  some  are  always  maturing 

id  bringing  money  in  to  meet  the  checks  of  customers,  in 
endless  chain  of  deposits  and  discounts.  It  is  found  in 
practice  that  $200,000  of  loans  and  discounts  may  be  easily 
carried  on  $50,000  of  cash.  Thus,  the  loans  of  all  the 
national  banks  in  the  United  States  in  October,  1894,  were 
$2,000,000,000  and  their  cash  (including  silver  certificates 
and  silver  dollars)  was  a  trifle  less  than  $400,000,000,  or 
only  one-fifth  of  the  amount  of  the  loans.  The  other  four- 
fifths  was  credit,  and  perfectly  sound  credit  too,  for  it  had 
passed  through  one  of  the  severest  panics  in  our  history. 

After  the  Siamese  twins  called  discount  and  deposit  have 
been  brought  to  life  in  the  manner  described,  the  depositor 
A  has  the  option  to  draw  the  money  by  a  check  payable  to 
B  or  to  take  it  in  the  form  of  circulating  notes.  The  banker 
has  no  option.  In  an  earlier  time  and  a  ruder  society 
bargains  were  sometimes  made  between  the  banker  and  his 
customer  that  the  latter  should  take  notes  and  keep  them 
out  a  certain  length  of  time,  or  at  all  events  should  put  them 
in  circulation  at  a  long  distance  from  home. 
Notes  identical  Such  practices  would  be  impossible  now  for 
many  reasons.  Checks  and  notes  are  identical 
in  their  nature.  Checks  will  be  drawn  against  deposits  for 
most  purposes,  because  they  are  more  convenient  and  expedi- 
tious, but  for  the  payment  of  wages,  for  the  purchase  of  farm 
products,  and  for  other  uses  in  regions  where  there  are  no 
banks,  circulating  notes  are  necessary.  These  things  settle 
themselves.  The  banker  has  nothing  to  say  about  it.  His 
liabilities  are  neither  increased  nor  diminished  in  either  case. 
The  only  thing  that  need  concern  him  is  the  goodness  of  A's 
paper  against  which  he  issued  his  credit.  The  form  of  issue, 
whether  in  A's  checks  which  will  pass  through  one  or  two 
hands,  or  in  bank  notes  which  may  pass  through  many  hands, 


238  REPRESENTATIVE  MONEY. 

is  of  little  consequence,  and  even  if  it  were  of  much  conse- 
quence it  is  beyond  his  control  or  influence. 

At  common  law,  anybody  may  issue  his  promissory  notes 

and  put  them  in  circulation  as  money  if  people  are  willing  to 

take  them.     It  was  found  in  course  of  time 

that  the  exercise  of  this  ri§ht  was  exposed  to 
accident  and  liable  to  abuse,  and  that  the 
State  must  interpose  for  the  protection  of  society  against 
knaves  and  fools.  At  first  it  was  believed  that  such  protec- 
tion could  be  secured  by  restricting  the  issue  of  circulating 
notes  to  a  select  number  of  persons  of  well  known  character, 
generally,  but  not  always,  incorporated  as  a  bank.  Thus 
the  three  bank  charters  granted  in  this  country  before  the 
adoption  of  the  federal  constitution,  which  banks  still  exist 
(the  Bank  of  North  America  in  Philadelphia,  the  Bank  of 
Massachusetts,  and  the  Bank  of  New  York),  contain  no 
mention  of  circulating  notes,  since  the  right  to  issue  them 
existed  without  legislative  authorization. 

A  check  is  an  order  on  the  bank  payable  at  sight  drawn 
by  A,  directing  the  payment  of  money  to  B.  It  may  be 
drawn  payable  to  bearer  or  to  order.  The  money  may  be 
drawn  by  B,  or  the  check  may  be  deposited 

in  the  same  bank  to  B's  credit>  or  it:  may be 

deposited  in  another  bank,  in  which  case  it 
will  be  collected  by  the  receiving  bank  the  following  day,  or 
passed  through  the  clearing  house.  The  functions  of  a  bank 
as  a  machine  of  exchange  are  best  seen  in  the  operations  of 
the  clearing  house. 


THE  CLEARING  HOUSE  SYSTEM.  389 

CHAPTER    II. 

THE  CLEARING  HOUSE   SYSTEM. 

A  CLEARING  HOUSE  is  a  machine  for  ascertaining  and  pay-- 
ing the  balances  which  any  number  of  banks  owe  to,  or  claim 
from,  each  other".    If  there  were  only  two  banks  in  a  particular 
place  there  would  be  no  economy  in  a  clearing  house.     Two 
derks  would  meet  at  the  banking  house  of  one 

°r  the  other'  and  comPare  tne  checks  that  each 
holds  against  the  other.  If  Bank  A  holds  checks 
for  $10,000  drawn  on  Bank  B  and  the  latter  holds  only  $9000 
drawn  on  the  former,  Bank  B  pays  $1000  to  Bank  A ;  then 
the  checks  are  mutually  surrendered  and  the  business  is  done. 
A  clearing  house  enables  any  number  of  banks  to  settle 
their  balances  in  about  the  same  time  that  two  banks  could 
do  so,  the  clearing  house  being,  for  this  purpose,  the  only 
creditor  and  the  only  debtor  of  each  bank. 

There  are  67  members  of  the  New  York  clearing  house, 
one  of  them  being  the  Assistant  Treasurer  of  the  United 
States,  and  each  member  has  a  number,  as  Bank  A,  No.  i, 
etc.  There  are  also  34  banks  and  n  trust  companies  in 
New  York,  19  banks  and  7  trust  companies  in  Brooklyn,  and 
9  banks  in  Jersey  City,  Hoboken  and  Staten  Island,  not 
members  of  the  clearing  house,  that  clear  through  other 
banks.  The  Union  Trust  Co.,  for  example, 
Clearin^otise  ma^es  an  arrangement  with  the  Bank  of  Com- 
merce, by  which  all  checks  drawn  on  the  former 
may  be  presented  at  the  clearing  house  to  the  settling  clerk 
of  the  latter,  and  be  treated  by  the  latter  exactly  like  checks 
drawn  on  itself.  In  this  case  the  Bank  of  Commerce  is 
responsible  to  its  fellow-members  of  the  clearing  house  for 
checks  drawn  on  the  Union  Trust  Co.  in  the  same  way  as 
for  its  own  checks.  Accordingly  it  may  happen  that  any 


240  REPRESENTATIVE  MONEY. 

bank  may  go  to  the  clearing  house  with  checks  and  drafts 
drawn  on  146  different  institutions,  which  it  has  received 
the  previous  day  from  its  depositors,  or  through  the  mail 
from  its  correspondents  elsewhere. 

In  order  to  expedite  the  work,  it  must  separate  these  checks 
into  not  more  than  66  packages,  one  for  each  member  of  the 
clearing  house  upon  which  it  holds  any,  'and  prepare  a 
schedule,  on  a  sheet  of  paper,  showing  the 

amount  of  its  claim  on  each  bank.  It  must 
also  have  a  ticket  for  delivery  to  each,  showing, 
for  example,  that  Bank  A  has  a  total  claim  on  Bank  B  for  so 
much  money.  It  must  also  come  to  the  clearing  house  with 
a  statement  showing  the  aggregate  of  all  its  claims  on  all 
the  banks.  This  is  its  claim  against  the  clearing  house  for 
that  day.  It  is  handed  to  the  manager  of  the  clearing  house, 
or  to  the  proof  clerk,  immediately  upon  entering.  All  these 
things  must  be  done  before  the  operation  of  clearing  begins. 

Each  bank  sends  two  clerks  to  the  clearing  house  —  a 
delivery  clerk  and  a  settling  clerk.  There  are  three  rows  of 
seats  running  through  the  clearing  room  lengthwise,  one  in 
the  center,  as  shown  in  the  illustration,  and  one  on  each  side 
parallel  with  it.  The  settling  clerks  occupy  these  seats  and 
each  one  has  a  sufficient  amount  of  desk  room  in  front  of 
him  to  do  his  work  on,  his  space  being  separated  from  his 
neighbors'  by  a  wire  screen.  The  delivery  clerks,  with  their 
packages  of  checks  in  separate  envelopes,  stand  in  the  open 
space  in  front  of  the  settling  clerks.  All  are  expected  to  be 
in  their  places  about  10  minutes  before  10  o'clock  in  the 
morning.  At  2  minutes  before  10  the  manager,  whose  station 
is  in  the  elevated  open  space  at  the  extreme  end  of  the  illus- 
tration, strikes  a  bell.  If  any  clerk  is  not  in  his  place  at 
that  time  he  is  fined  $2. 

The  movement  has  all  the  precision  of  a  military  drill. 
When  the  second  bell  sounds,  at  exactly  10  o'clock,  each 


THE  CLEARING  HOUSE  SYSTEM.  241 

delivery  clerk  takes  one  step  forward,    hands    the    proper 
package  to  the  settling  clerk  of  the  bank  next  to  him,  drops 

the  accompanying  ticket,  showing  the  amount, 
The  operation.  into  an  aperture  like  a  letter  box,  and  places 

before  this  settling  clerk  his  schedule,  on 
which  the  latter  places  his  initials.  This  is  an  acknowledg- 
ment of  receipt  of  the  package,  but  not  of  any  particular 
sum.  Thus  the  procession  moves  uninterruptedly  until  each 
delivery  clerk  has  presented  to  each  settling  clerk  the  proper 
package  and  ticket.  Usually  this  part  of  the  operation  is 
completed  in  ten  minutes.  Meanwhile  the  proof  clerk,  who 
occupies  a  desk  near  the  manager,  has  entered  the  claims  of 
each  bank  under  the  head  "Banks  Cr."  on  a  broad  sheet  of 
paper  shown  below. 

Inasmuch  as  the  amount  of  each  bank's  claim  against  the 
clearing  house  (entered  under  the  head  "  Banks  Cr.")  is  the 
sum  of  all  the  tickets  which  its  delivery  clerk  has  pushed 
into  the  letter  boxes  of  the  other  banks,  it  follows  that  all 
the  tickets  of  all  the  banks  should  equal  all  the  entries  under 
that  head.  The  next  step  in  the  operation  is  for  each  settling 
clerk  to  arrange  the  amounts  of  all  the  tickets  in  his  letter 
box  in  a  column,  add  it  up  and  send  the  amount  to  the  proof 
clerk  which  he  transcribes  and  arranges  according  to  the 
bank's  number  under  the  head  "Banks  Dr.,"  so  that  the 
debit  of  Bank  A  shall  be  on  the  same  line  with  its  credit. 

Then  the  difference  between  the  two  will  show 
The  Result.  how  much  the  bank  owes  the  clearing  house, 

or  how  much  the  clearing  house  owes  the  bank. 
The  time  occupied  by  the  settling  clerks  in  arranging  their 
tickets  and  adding  up  the  columns  is  about  half  an  hour. 
As  fast  as  these  footings  are  completed  they  are  sent  to  the 
proof  clerk,  who  puts  them  in  the  debit  column  opposite  the 
credits  of  the  banks  respectively.  When  all  are  completed, 
if  no  error  has  been  made,  the  footings  of  the  credit  and 


242  REPRESENTATIVE  MONEY. 

debit  columns  must  be  exactly  equal,  and  the  footings  of  the 
two  other  columns,  which  show  the  differences,  must  be 
exactly  equal.  Then  these  differences  are  read  off  slowly 
and  in  a  distinct  tone  of  voice  by  the  manager  so  that  each 
settling  clerk  can  write  down  the  sum  that  his  bank  has  to 
pay  or  to  receive. 

As  time  is  money  at  the  clearing  house,  somebody  is  fined 
for  every  error  and  for  every  delay  in  making  footings,  also 
for  disobeying  the  orders  of  the  manager,  or  any  disorderly 
conduct.  Forty-five  minutes  from  10  o'clock  are  allowed  for 
completing  the  proof.  For  all  errors  remaining  undiscovered 
at  11.15  the  fines  are  doubled,  and  at  12  o'clock  quadrupled. 
The  highest  fine  for  an  error  discovered  before  11.15  ls  $3- 

When   the   footings   have  been   made   the 
Proof  Sheet.  .    .          .     .       ,      .  „  . 

proof  sheet  is  in  the  following  form  : 

BANKS.  DUE  CLEARING  HOUSE.        BANKS  DR.  BANKS  CR.  DUE  BANKS. 

A  $1,260.81  '         $10,521.21          $9,260.40 

B  55,662.16         71,850.39       $16,188.23 

C 

D 

E 

F 

G 

X 

$28,948.90         $413,823.65     $413,823.65       $28,948.90 

The  actual  amounts  are  much  larger  than  here  represented, 
some  of  the  banks  being  credited  and  debited  more  than 
ten  million  dollars  at  a  single  clearing.  On  one  occasion, 
the  Assistant  Treasurer  of  the  United  States  had  more  than 
30,000  separate  checks  turned  in  against  him,  mostly  for 
pension  payments.  No  matter  how  large  the  amounts  may 
be,  or  how  many  separate  checks,  or  how  many  banks  may 
participate  in  the  clearing,  the  result  will  always  be  in  the 


41,922.90 

49,621.86 

7,698.96 

9,651.85 

61,330.33 

51,678.48 

3,566.60 

56,397.00 

52,830.40 

74,719.60 

79,781.31 

5,061.71 

5,073-14 

53,211.34 

48,138.20 

9,396.50 

60,059.11 

50,662.61 

THE  CLEARING  HOUSE  SYSTEM.  243 

foregoing  form.  The  amount  of  the  balances,  i.e.,  of  the 
sum  to  be  paid  into  and  out  of  the  clearing  house,  is  usually 
about  5  per  cent  of  the  total  amount  of  checks  passed  through 
it.  At  the  clearing  of  September  22,  1862,  the  balance 
against  one  of  the  banks  was  only  one  cent. 

The  debtor  banks  must  pay  what  they  owe  to  the  clearing 

house  before  1:30  P.M.,  after  which  the  clearing  house  pays 

the  same  money  to  the  creditor  banks.     Thus,  for  about  an 

hour  each  day,  the  clearing  house  may  be  in 

affluent  circumstances  while  before  and  after 

that  hour  it  has  not  a  cent.     The  money  paid 

in   and   out  consists  of  gold  coin,    gold  certificates,    legal 

tender  notes  and  legal  tender  certificates.     The   last   are 

issued  by  the  United  States  Treasury  in  denominations  not 

less  than  $5,000,  to  national  banks  depositing  legal  tender 

notes  of  the  same  amount,  the  notes  being  held  as  a  special 

deposit  by  the  Treasury  for  the  redemption  of  the  certificates. 

The  magnitude  of  the  business  transacted  at  the  clearing 
house  is  stupendous.  One  hundred  millions  per  day  is  the 
present  average  of  the  checks  and  drafts  passing  through  it. 
In  years  of  great  business  activity  it  is  much  larger.  In 
1 88 1  the  clearings  for  the  year  were  forty-eight  thousand 
millions  or  about  one  hundred  and  sixty  millions  for  each 
working  day.  The  clearings  at  New  York  are  about  twice 
as  large  as  those  of  all  the  other  cities  in  the 
Clearings6  Of  Union  put  together.  The  reason  for  this  is  that 
New  York  is  the  place  where  the  other  cities 
balance  their  claims  against  each  other.  In  other  words 
New  York  is  a  clearing  house  for  the  whole  country  as  well 
as  for  its  own  immediate  traffic.  There  are  eighty  clearing 
houses  in  the  United  States. 

It  sometimes  happens  that  the  demands  of  depositors  for 
currency  are  so  great  that  the  weaker  banks  are  not  able  to 
respond ;  in  other  words  they  are  liable  to  suspend  pay- 


244  REPRESENTATIVE  MONEY. 

ments.     The  suspension  of  one  bank  at  such  a  time  may 

lead  to  excessive  demands  upon  other  banks, 
Clearing  House  causing  them  to  suspend  also.  There  have  been 
cates.  five  crises  of  this  kind  in  which  the  New  York 

banks  issued  "clearing  house  loan-certificates" 
in  order  to  avert  general  disaster,  viz.,  in  1860,  1873,  1884, 
1890,  and  1893.  A  description  of  one  will  serve  for  all. 

In  the  month  of  June,  1893,  there  was  a  disturbance  in 
the  money  market.  It  is  needless  to  ask  what  caused  it. 
The  immediate  consequence  was  the  rapid  withdrawal  of 
currency  from  the  banks.  The  calls  from  banks  in  the  West 
and  South  were  very  heavy.  If  all  the  deposits  are  demanded 
in  this  form  at  once  of  course  they  cannot  be  paid  out  of  a 
fund  which  is  only  one-fourth  of  that  sum.  But  some  banks 

have  larger  reserves  than  others.  Some  are 
Roserros"  habitually  more  cautious  than  others.  Some 

have  larger  capital  and  surplus  in  proportion 
to  their  liabilities.  Some  have  a  more  steady-going  class  of 
depositors,  less  likely  to  be  smitten  with  panic  than  others. 
Such  banks  are  able  to  help  their  weaker  neighbors.  By 
combining  or  "  pooling "  the  reserves  of  all  the  banks  the 
weaker  ones,  or  those  most  exposed  to  danger,  may  be  saved 
and  thus  the  panic  be  restrained  or  wholly  averted.  It  is 
necessary,  however,  that  the  stronger  banks  should  be 
secured  for  the  advances  which  they  make. 

On  the  1 5th  of  June,  1893,  the  Clearing  House  Associa- 
tion resolved  that  any  member  might  present  to  the  Loan 

Committee  its  bills  receivable  or  other  securi- 
SicatesC6r  ^es'  together  with  its  own  obligation,  and 

receive  in  exchange  therefor  certificates  for 
75  per  cent  of  the  par  value- of  the  securities,  which  certifi- 
cates should  be  accepted  in  lieu  of  cash  in  the  payment  of 
balances  at  the  clearing  house.  The  certificates  were  in  the 
following  form : 


THE  CLEARING  HOUSE  SYSTEM.  245 

No... 

LOAN  COMMITTEE  OF  THE  NEW  YORK  CLEARING  HOUSE 
ASSOCIATION. 

This  certifies  that  the  [name  of  bank]  has  deposited  with 
this  Committee  securities  in  accordance  with  the  proceed- 
ings of  a  meeting  of  the  Association  held  June  I5th,  1893, 
2  upon  which  this  certificate  is  issued.     This  certificate  will 
:=!  be  received  in  payment  of  balances  for  the  sum  of  Five 
Q  thousand  Dollars  from  any  member  of  the  Clearing  House 
^  Association. 

oS 

C/3 

§       On  the  surrender  of  this  certificate  by  the  Q 

X  depositing  bank  above  named  the  committee  o' 

H  will  endorse  the  amount  as  a  payment  on  the  g 

•£  obligations  of  said  bank  held  by  them  and  l±. 

'£  surrender  a  proportionate  share  of  the  collat-  £ 

eral  securities  held  thereunder.  f 

$5,000. 

The  certificates  could  not  be  used  for  any  other  purpose. 
As  they  drew  6  per  cent  interest  from  the  time  they  were 
used,  no  bank  would  take  out  more  than  it  really  needed. 
On  the  proof  sheet  shown  above  the  creditor  Banks  B,  C, 
and  F  were  entitled  to  receive  $28,948.90  which  might  be  paid 
to  them  (except  fractional  sums)  in  these  loan  certificates. 
%  Thus  the  reserves  of  all  the  banks  are  made  a 
Public  Mind6  common  fund.  The  total  reserve  is  not  made 
any  larger  by  this  means,  but  the  aggregate 
demand  is  lessened,  because  the  union  of  the  banks  has  a 
powerful  influence  on  the  public  imagination.  It  does  not 
lessen  any  real  want  of  currency,  but  it  quiets  people's  fears 
and  checks  their  imaginary  wants.  It  does  not  avert  suspen- 
sion in  all  cases,  but  it  avoids  the  worst  consequences  of 
suspension. 

Many  persons  and  even  some  bankers  think  that  there  is 
no  limit  to  the  possible  issue  of  loan  certificates,  short  of  the 
whole  amount  of  bills  receivable  of  the  banks.  It  is  true 


246  REPRESENTATIVE  MONEY. 

that  such  certificates  may  be  issued  to  that  extent,  but  their 
efficacy  to  avert  suspension  stops  when  the  combined  cash 
reserve  is  exhausted.  Indeed,  it  stops  some- 
wliat  De^ore'  since  the  banks  will  make  difficul- 
ties about  cashing  checks  before  they  pay  out 
their  last  dollar.  They  hold  back  some  portion  of  their 
currency  for  indispensable  needs.  As  to  checks  in  general, 
they  stamp  them  "good  through  the  clearing  house,"  where 
as  we  have  seen,  95  per  cent  of  them  are  balanced  by  other 
checks.  Every  bank  is  required  by  law  to  pay  every  check 
on  demand  in  legal  tender  money.  Yet  if  the  holder  of  the 
check  accepts  the  stamp  "good  through  the  clearing  house," 
in  lieu  of  cash,  the  law  is  satisfied.  If  he  insists  upon  pay- 
ment at  all  hazards,  the  bank  must  pay  or  go  to  protest,  and 
in  every  such  case  it  will  pay.  It  keeps  back  some  of  its 
cash  for  such  emergencies.  The  influence  of  public  opinion 
at  such  times  is  the  strongest  force  going.  Public  opinion 
does  not  allow  men  to  exercise  their  full  rights  in  time  of 
panic.  The  fact  is  recognized  that  the  banks  cannot  pay 
all  their  deposits  at  once,  and  that  when  a  crisis  comes  some 
discrimination  must  be  made,  and  that  the  banks  can  best 
judge  how  it  should  be  made. 

The  whole  amount  of  loan  certificates  issued^  by  the  New 

York  Clearing  House  in   1893  was  $41,495,000  of  which 

$38,280,000  were  outstanding  at  one  time.     This  did  not 

prevent  the   partial   suspension  of  cash  payments.     There 

came  a  time  when  most  of  the  banks  made 

Suspension  not      some  difficulty  about  the  payment  of  checks 
always  Pre-  .       .       , 

vented.  over  the  counter,  although  the  clearing  house 

operations  continued  without  interruption. 
Then  the  phenomenon  of  a  "  premium  on  currency "  was 
witnessed  in  Wall  Street.  There  was  just  as  much  currency 
in  the  country  as  ever.  Certain  persons  who  had  it  in  their 
possession  were  glad  to  make  a  profit  out  of  it,  while  others 


THE  CLEARING  HOUSE  SYSTEM.  247 

who  needed  it,  and  who  preferred  not  to  add  to  the  troubles 
of  the  banks  by  demanding  it  from  them,  were  willing  to  give 
their  certified  checks,  and  something  more,  for  it.  In  this 
way  a  brisk  business  sprang  up  and  the  premium  of  currency 
over  certified  bank  checks  rose  as  high  as  4  per  cent.  As 
the  panic  subsided  the  premium  sank.  It  disappeared  as 
soon  as  the  volume  of  clearing  house  loan  certificates  began 
to  subside,  because  that  event  betokened  the  returning  ability 
of  the  banks  to  meet  the  demand  for  cash.  The  last  loan  certifi- 
cates were  redeemed  and  cancelled  on  the  first  of  November. 
There  can  be  no  doubt  that  the  issue  of  loan  certificates, 
although  it  did  not,  in  this  instance,  prevent  suspension 
altogether,  did  avert  the  worst  consequences  of  it.  It  pre- 
vented the  actual  closing  of  any  bank.  It  kept  the  trade  of 
the  country,  both  internal  and  external,  in  motion.  It  enabled 
employers  of  labor  to  keep  going,  and  prevented 
8  °  multitudes  of  business  men  from  falling  into 


undeserved  bankruptcy.  In  the  crises  of  1860, 
1884  and  1890  the  issue  of  loan  certificates  averted  bank  sus- 
pension altogether.  In  that  of  1873  the  events  were  similar 
to  those  of  1893,  but  worse.  In  1893  loan  certificates  were 
issued  in  Boston,  Philadelphia,  Baltimore,  Pittsburgh,  Buffalo, 
Detroit  and  New  Orleans.  In  Columbia,  S.  C.,  and  many 
other  Southern  cities  clearing  house  loan-certificates  were 
issued  in  denominations  as  small  as  one  dollar  for  general 
circulation,  to  meet  the  dearth  of  currency.1 

The  machine  of  exchange  called  a  bank  looks  very  well  on 
paper.  It  appears  to  be  capable  of  balancing  nearly  all  the 
business  transactions  that  men  make  with  each  other  in  the 
civilized  world,  without  the  use  of  money.  Theoretically  it 

1  A  description  of  the  various  substitutes  for  money  which  the  panic 
of  1893  called  into  existence,  with  fac-similes  of  many  of  them,  is  given 
in  a  speech  of  Hon.  John  DeWitt  Warner  in  the  H.ouse  of  Representa- 
tives June  2,  1894. 


248  REPRESENTATIVE  MONEY. 

can,  but  there  are  many  disturbing  elements.    Some  persons 
are  dishonest,  others  are  imprudent,  others  are 
Element**  unfortunate,    and   the   whole    business    com- 

munity is  at  times  exposed  to  panics  and  crises, 
to  revolutions  and  wars.  All  these  things  have  a  very  dis- 
turbing influence  on  credit  and  therefore  on  banks. 

There  was  no  settled  public  opinion  on  the  subject  of 
banks  for  a  long  time  after  the  Union  was  formed,  and 
therefore  no  settled  legislation.  Ideas  took  shape  slowly 
and  were  the  results  of  experience.  The  science  of  banking 
is  to  be  learned  from  the  ideas  that  have  thus  gradually 
crystallized  into  law.  It  has  been  built  up  like 

a  wal1'  stone  by  stone>  here  a  little  and  there  a 
little,  and  the  process  is  still  going  on.    When 

public  opinion  is  satisfied  by  experience  that  a  change  in  the 
law  is  needed,  the  change  is  made  and  the  new  law  is  retained 
as  long  as  it  works  well  and  no  longer.  Thus  the  science  of 
banking,  like  the  other  sciences,  is  in  a  state  of  flux  and 
reflux,  and  will  so  continue  indefinitely.  Its  growth  must  be 
traced  in  the  history  of  banking. 


CHAPTER   III. 
COLONIAL  BANKING, 

THE  first  banking  experiment  in  Massachusets,  of  which 
we  have  any  clear  account,  was  started  in  1714.  It  was 
entitled:  "A  Projection  for  Erecting  a  Bank  of  Credit  in 
Boston,  New  England,  Founded  on  Land  Security."1  The 
preamble  recites  that  there  is  a  sensible  decay  of  trade  for 

1 A  pamphlet  copy  of  this  "  Projection  "  is  in  the  Library  of  Congress, 
together  with  the  attack  made  upon  it  by  Attorney  General  Dudley,  and 
the  reply  to  the  latter. 


COLONIAL  BANKING.  249 

want  of  a  medium  of  exchange.  To  supply  this  deficiency 
the  parties  proposed  to  subscribe  ^300,000  and  that  every 
subscriber  should  "  settle  and  make  over  real 
tion»omu  estate  to  the  value  of  his  respective  sub- 
scription, to  the  trustees  of  the  partnership  or 
bank,  to  be  and  remain  as  a  fund  or  security  for  such  bills 
as  shall  be  emitted  therefrom."  Each  subscriber  was 
pledged  to  give  the  same  credit  to  the  bills  as  to  those  of 
the  province,  and  accept  them  in  all  payments  (specialties 
excepted)  "upon  forfeiture  of  ^"50  for  each  refusal  until  the 
refuser  has  forfeited  his  whole  security  and  profits."  At 
meetings  of  stockholders  no  person  should  have  more  than 
five  votes,  however  large  his  holdings  might  be.  Loans 
might  be  made  on  "  ratable  estates  "  to  the  amount  of  two- 
thirds  of  their  value ;  on  wooden  houses  not  exceeding  the 
value  of  the  land  belonging  to  them ;  on  brick  houses  not 
exceeding  one  and  one-half  times  the  value  of  the  land  be- 
longing to  them  ;  on  "  iron  or  other  unperishable  commodities, 
as  a  pledge,  for  one-half  or  two-thirds  according  to  the 
market."  Each  subscriber  was  obligated  to  take  out  and 
keep  out  for  two  years  notes  of  the  bank  equal  to  at  least 
one-fourth  part  of  the  amount  of  his  subscription,  but  he 
could  transfer  this  obligation,  or  privilege,  to  any  other 
person  on  the  books  of  the  bank.  All  loans  were  to  be  at 
5  per  cent  interest,  but  past  due  paper  was  to  pay  six  per 
cent.  Estates  of  subscribers  conveyed  to  the  trustees  might 
be  withdrawn  and  others  of  equal  value  sub- 

.rtideCoii-          stituted  to  the  satisfaction  of  the  Directors, 
ceptions. 

It  was  provided  that  whenever  ^"150,000  of 
the  notes  were  put  out  so  as  to  draw  interest  the  bank  should 
pay  ^"400  per  annum  to  a  hospital  in  Boston  whenever  the 
same  should  be  established,  provided  that  the  bank's  notes 
should  be  made  receivable  for  town  taxes  and  assessments. 
Other  yearly  donations  amounting  to  ^"400  were  to  be  made. 


250  REPRESENTATIVE  MONEY. 

No  notes  could  be  issued  until  ;£i  00,000  had  been  sub- 
scribed to  the  capital  stock.  The  form  of  the  notes  con- 
tained no  promise  to  pay,  but  merely  the  pledge  of  the  sub- 
scribers to  "  accept  the  same  in  lieu  of  twenty  shillings  in 
all  payments"  ;  also  the  pledge  of  the  bank  to  accept  them 
"for  the  redemption  of  any  pawn  or  mortgage  in  the  said 
bank." 

The  scheme,  although  not  favored  by  the  General  Court, 
was  very  popular.  "  The  controversy,"  says  Hutchinson, 
"had  an  universal  spread  and  divided  towns,  parishes  and 
particular  families."  The  same  author  tells  us  that  the  pro- 
moters "generally  consisted  of  persons  in  difficult  or  involved 
circumstances  in  trade,  or  such  as  were  possessed  of  real 
estates  but  had  little  or  no  ready  money  at  command,  or 
men  of  no  substance  at  all ;  and  we  may  well  enough  sup- 
pose the  party  to  be  very  numerous.  Some,  no  doubt,  joined 
them  from  mistaken  principles  and  the  apprehension  that  it 
was  a  scheme  beneficial  to  the  public  and  some  for  party's 
sake  and  popular  applause." 

Paul  Dudley,  the  Attorney  General,  and  son  of  Governor 
Dudley,  made  a  vigorous  attack  on  this  "projection"  in  a 
pamphlet  printed  anonymously.  Among  other  things  he 
pointed  out  that  the  pretended  security  for  the  bills  was  no 
security  since  the  holder  of  them  could  do 
Dudley's  Attack,  nothing  with  a  mortgage  if  it  were  turned  over 
to  him.  Besides  this  he  gave  his  opinion  as  a 
lawyer  that  the  "  courts  would  never  adjudge  those  mort- 
gages to  be  good  in  the  law,  being  for  no  valuable  consider- 
ation, so  that  the  lands  so  mortgaged  would  revert  to  the 
original  owners  like  the  year  of  Jubilee  among  the  Jews." 
Dudley's  pamphlet  was  answered  by  the  projectors  in  an- 
other pamphlet,  to  which  they  signed  their  names.  Replying 
to  his  objection  as  to  the  mortgage  security  they  affirm  that 
the  mortgages  themselves  will  recite  a  good  and  valid  con- 


COLONIAL  BANKING. 


251 


sideration  for  the  giving  of  them  ;  besides  which,  "the  sub- 
scribers are  each  and  all  obligated  to  receive  the  notes  in  all 
payments."  This  is  printed  in  capital  letters,  as  though  it 
were  a  conclusive  argument.  No  process  was  indicated  by 
which  any  holder  could  compel  any  subscriber  to  receive  the 
notes  as  the  equivalent  of  twenty  shillings  in  goods,  nor 
was  there  any  provision  for  fixing  the  price  of  the  goods. 
The  "projection"  had  numerous  supporters  who  were  not 
members  of  it  but.  who  wanted  to  borrow  money  on  the 
favorable  terms  proposed.  To  head  them  off 

GeneralCourt       the     General    Court    passed    a    loan    act    for 

rejects  it. 

£50,000  colonial  bills  of  credit  and  then  re- 
jected the  Land  Bank  bill.  This,  says  Hutchinson,  "les- 
sened the  number  of  the  party  for  the  private  bank,  but  it 
increased  the  zeal  and  raised  a  strong  resentment  in  those 
which  remained." 

Next  in  point  of  time  we  find  two  operations,  one  in  1733 
and  the  other  in  1740,  which  have  some  semblance  to  modern 
bank-note  issues  and  which  appear  to  have 
been  successful  as  business  enterprises  and 
not  hurtful  to  the  public.  They  are  described 
in  an  anonymous  pamphlet  of  the  year  I74I.1  The  writer 
is  giving  an  account  of  the  heterogeneous  currency  in  Mas- 
sachusetts Bay.  Among  the  various  things  in  circulation 
were  : 

"  Private  Bills  of  Credit :  First  Silver  Money  scheme  or 
merchant's  notes  whereof  £110,000  value  was  emitted  Anno 
1733  to  prevent  an  enormous  Rhode  Island  publick  emission 

1 "  A  letter  to  a  merchant  in  London  concerning  a  late  combination 
in  the  Province  of  the  Massachusetts  Bay  in  New  England  to  Impose 
or  Force  a  Private  Currency  called  Land  Bank  Money ;  Printed  for  the 
publick  Good  1741."  The  copy  of  this  pamphlet  in  the  Library  of 
Congress  has  the  words  "  by  Benjamin  Dolbeare  "  written  at  the  bottom 
of  the  title  page. 


Private  Issues 
of  Notes. 


252  REPRESENTATIVE  MONEY. 

from  depreciating  our  currency.  These  bills  continue  to  be 
punctually  paid  in  gold  and  silver  as  they  become  due  and 
are  at  present  33  per  cent  better  than  province  bills."  They 
did  not  bear  interest.  The  premium  on  them  arose  from  the 
fact  that  the  colonial  bills  were  depreciating. 

"Secondly.  Another  sum  of  Merchant's  Notes  value 
,£120,000  emitted  Anno  1740,  on  a  silver  bottom,  projected 
to  stifle  that  pernicious  grand  bubble  called  the  Land  Bank. 
Those  bills  considered  abstractedly  are  advantageous  to  the 
possessor;  being  payable  on  demand  in  a  "legal  currency 
they  are  equivalent  to  cash,  and  carrying  a  growing  profit  of 
three  per  cent  per  annum  they  are  better  than  province  bills 
and  (if  otherwise  regular)  as  good  as  the  stocks  and  com- 
panies bonds  in  London;  the  signers  without  further  re- 
course upon  the  partnership  being  our  most  eminent  and 
wealthy  traders  are  capable,  when  required,  to  call  in  and 
pay  off  all  their  bills  upon  a  short  sight." 

The  first  of  these  private  emissions  is  mentioned  also  by 
Hutchinson.  In  1733  on  account  of  a  new  batch  of  Rhode 
Island  bills  of  credit  for  ,£100,000,  he  says,  "the  merchants 
of  Boston  confederated  and  mutually  promised  and  engaged 
not  to  receive  any  bills  of  this  new  emission ;  but,  to  provide 
a  currency,  a  large  number  of  them  formed  themselves  into 
a  company  and  issued  ;£i  10,000  redeemable  in  ten  years  in 
silver  at  19^.  per  ounce,  the  then  current  rate."  The  Rhode 
Island  bills  nevertheless  came  in,  silver  rose  to  27^.  per  ounce 
and  then  the  merchants'  notes  were  hoarded. 

We  now  come  to  the  "  pernicious  grand  bubble  called  the 

Land  Bank,"  of  1741,  a  scheme  which  convulsed  society  in 

its  day  and  came  near  to  producing  a  revo- 

LaM  Bank  of        lution      The  Dolbeare  pamphlet  calls  it  "  The 

Land  Bank  or  Manufactory  scheme  (the  de- 
signed subject  of  this  letter)  being  a  late  combination  of 
a  vast  multitude  of  necessitous,  idle  and  extravagant  per- 


COLONIAL  BANKING.  253 

sons,  with  all  the  signs  of  a  Genuine  Bubble,  (who)  contrived 
to  have  what  they  call  money  at  an  easy  rate  and  to  pay 
their  debts  in  a  precarious  fallacious  kind  of  bills,  very  ill  or 
not  at  all  secured,  of  no  determined  value,  bearing  no  interest, 
not  payable  (the  possessor  cannot  oblige  to  an  acceptance) 
until  after  twenty  years  and  being  a  very  large  sum  (equal 
to  all  the  then  provincial  bills  of  New  England)  of  .£600,000 
will,  if  not  remedied,  depreciate  all  paper  currencies  that  are 
not  determined  by  a  silver  value,  consequently  prove  a  great 
prejudice  to  private  property  and  great  loss  and  damage  to 
the  merchants  of  Great  Britain  trading  to  New  England.  .  . 

"  If  we  can  suppose  this  Board  of  Bill  Makers  (he  con- 
tinues) to  be  honest  men  and  that  in  conscience  (they  having 
no  other  check  but  conscience)  they  emit  no  more  than 
according  to  their  past  articles,  as  they  have  no  exclusive 
patent  any  other  number  of  desperate  men  may  follow  the 
same  money-making  trade  and  bills  may  multiply  as  in  the 
former  case.  .  .  .  The  projectors  and  managers  of  this 
scheme  have  debauched  the  minds  of  the  people  by  instilling 
into  them  some  pernicious  principles  destructive  of  all 
society  and  good  government : 

"First.  That  common  consent  or  the  humour  of  the 
multitude  ought  to  be  the  Ratio  Ultima  in  everything  and 
particularly  in  currencies.  .  .  . 

"  Secondly.  That  every  landed  man,  even  to  the  mort- 
gaging of  his  last  acre,  has  a  right  to  make  money.  .  .  . 

"  Thirdly.  That  the  industrious  merchants  and  frugal 
monied  men  are  the  bane  of  a  country  ;  because  they  expect 
their  debts  and  dues  to  be  honestly  paid.  .  .  . 

"  Fourthly.  To  value  themselves  as  being  formidable  by 
their  numbers,  two  thousand  principals,  as  they  publish,  and 
many  thousand  abettors.  This  is  ruffian-like,  by  superiority  of 
numbers  to  endeavor  to  make  honest  people  buy  the  rabbit. 1 .  . . 
1  This  is  old  slang,  meaning  to  get  the  worst  of  a  bargain. 


254  REPRESENTATIVE  MONEY. 

"  Fifthly.  By  the  inclosed  newspapers  printed  in  Boston, 
you  may  see,  and  we  here  upon  the  spot  do-  daily  hear,  how 
the  managers  spirit  the  people  to  mutiny,  sedition  and  riots. 
One  gives  it  for  law  that  no  orders  from  Boards  at  Whitehall 
nor  acts  of  Parliament  can  put  a  stop  to  their  proceedings. 
Others  say  we  shall  humble  the  proud  merchants  ;  that  if  the 
merchants  will  not  receive  these  bills  in  pay  they  must  blame 
themselves  for  any  outrages  that  may  happen." 

The  writer  concludes  by  saying  :  "  In  all  bubbles,  combina- 
tions, etc.,  the  guilt  of  the  projectors  and  managers  is  from 
a  corrupt  principle  but  the  error  of  their  followers,  the 
multitude,  is  only  from  a  mistake  in  judgment." 

The  Land  Bank  of  1741  began  to  issue  circulating  notes 
without  a  charter.  In  the  state  of  the  law  at  that  time  none 
was  necessary.  Governor  Belcher  issued  a  proclamation 
against  it  and  recommended  the  General  Court  to  suppress 
it.  The  latter  took  no  action  but  rather  encouraged  it. 
Several  justices,  including  Samuel  Adams,  Sr.,  resigned 
because  they  were  concerned  in  it.  The  Bank  filed  a  copy 
of  its  organization  with  the  Secretary  of  the  Council.  This 
body  voted  that  the  filing  was  an  impertinence  and  ordered 
the  Secretary  to  return  it.  The  Governor  resolved  to  dismiss 
all  officers,  civil  and  military,  who  had  any- 
61  thing  to  do  with  it,  or  who  encouraged  it 


in  any  way.  Whole  troops  resigned  in  con- 
sequence. Henry  Lee,  of  Worcester,  took  the  ground  that 
it  was  the  privilege  of  an  Englishman  to  give  his  approval 
to  this  bank  and  added  :  "  To  sacrifice  my  post  for  the  service 
of  my  country  is  infinitely  more  honorable  than  to  keep  it 
on  such  base  conditions." 

A  regular  banking  mania  broke  out.  New  banks  in  imi- 
tation of  this  one  were  started  in  Essex  Co.,  in  Middlesex 
and  in  the  town  of  Scituate,  all  ready  to  demand  or  to  grab 
whatever  privileges  the  Land  Bank  might  secure.  These 


COLONIAL  BANKING. 


255 


Parliament 
interferes. 


privileges  were  sufficiently  liberal,  as  the  bank  was  issuing 
circulating  notes  redeemable  in  twenty  years  and  then  only 
in  goods  at  an  arbitrary  and  unknown  valuation.  As  the 
situation  had  some  resemblance  to  that  which  had  lately 
existed  in  England  during  the  South  Sea 
bubble,  Parliament  extended  the  prohibitions 
and  penalties  of  the  anti-Bubble  Act  to  the 
colonies.  This  produced  such  exasperation  among  the  pro- 
moters and  friends  of  the  Land  Bank  that  steps  were  taken 
to  mob  the  Governor  and  Council.  Governor  Belcher  was  a 
native  of  the  province  and  a  man  of  courage.  He  received 
early  information  of  the  intended  riot  and  took  steps  to  quell 
it.  In  a  letter  to  Thos.  Hutchinson  he  wrote  :  "  You  say  it 
would  be  much  better  if  some  other  way  than  by  application 
to  Parliament  could  be  found  to  suppress  it 
Attempted  Riot.  (Land  Bank).  I  assure  you  the  concerned 
openly  declare  they  defy  any  act  of  Parliament 
to  be  able  to  do  it.  They  are  grown  so  brassy  and  hardy  as 
to  be  now  combining  in  a  body  to  raise  a  rebellion  and  the 
day  is  set  for  their  coming  to  this  town.  ...  I  have  this 
day  sent  the  Sheriff  and  his  officers  to  apprehend  some  of 
the  heads  of  the  conspirators." 

The  Land  Bankers,  in  order  to  get  their  notes  in  circula- 
tion, had  bought  any  kind  of  property  for  which  the  owners 
would  accept  the  notes  in  payment.  The  latter  had  been 
issued  in  many  cases  at  half  their  face  value.  Now  the 
anti- Bubble  act  gave  the  holders  an  immediate  right  of  action 
against  every  partner  and  director  for  the  full  amount  of 
their  claims.  As  soon  as  this  fact  became  well  understood 
the  anger  of  the  partners  against  Governor 
Belcher,  to  whom  they  attributed  their  mis- 
fortunes, was  unbounded.  Their  first  step 
was  to  get  him  removed  from  office,  and  this  they  actually 
accomplished.  They  prepared  a  series  of  cunning  forgeries 


Gov.  Belcher 
Removed. 


256  REPRESENTATIVE  MONEY. 

which  they  sent  to  England  implicating  him  in  dishonest 
acts,  the  details  of  which  are  given  by  Hutchinson.  These, 
however,  would  have  failed  of  their  purpose  but  for  a  political 
intrigue  in  England.  They  succeeded  in  enlisting  the  sym- 
pathies of  a  man  who  had  great  influence  with  the  Dis- 
senters of  the  borough  of  Coventry.  An  election  was  pending 
there  and  this  vote  was  promised  to  the  Duke  of  Grafton  on 
condition  that  Governor  Belcher  should  be  removed.  The 
"  deal  "  was  carried  out  and  the  removal  was  made  ostensibly 
on  the  ground  of  the  charges  preferred  in  the  forged  papers. 
Governor  Belcher  went  to  England,  exposed  the  forgeries, 
and  was  then  appointed  Governor  of  New  Jersey. 

His  successor  in  Massachusetts  was  Governor  Shirley. 
The  Land  Bankers  thought  that  they  should  now  have  every- 
thing their  own  way.  The  Governor  took  them  into  his 
favor,  ostensibly  if  not  actually.  Dr.  Douglass  pours  out 
the  vials  of  his  wrath  on  the  Land  Bank  and  all  concerned 
in  it  and  on  the  Governor  for  his  toleration  of  the  promoters. 
He  calls  it  "  a  combination  of  desperate  debtors  by  the  bub- 
ble name  of  Land  Bank  that  had  formed  a  prevailing  party, 
which,  notwithstanding  their  being  timely  stigmatized  and 
damned  by  an  act  of  the  British  Parliament,  their  influence 
continues  to  prevail  to  this  time,  1749."  Again,  he  says  : 
"  Soon  after  the  Land  Bank  scheme  was  damned  by  act  of 
Parliament  Governor  Shirley  —  I  shall  not 

Gov.  Shirley  sav  m  contempt,  but  perhaps  in  neglect  of  this 
and  the  Land  ,  .  ,.  ,  .  - 

Bankers.  act  —  promoted  their  directors  and  other  cruet 

managers  to  the  highest  offices  of  counsellers, 
provincial  agents,  judges,  justices,  sheriffs  and  militia  offi- 
cers, preferable  to  others."  Hutchinson,  on  the  other  hand, 
says  that  Shirley  was  under  the  necessity  of  conciliating  the 
Land  Bank  men  in  order  to  carry  on  the  government  at  all, 
and  that  he  displayed  great  art  in  bringing  them  over  to  his 
measures  without  giving  in  to  their  measures.  The  great 


COLONIAL  BANKING.  257 

favor  they  expected  was  relief  from  the  penalties  of  the  anti- 
Bubble  act.  A  bill  was  passed  by  the  General  Court  to  make 
each  man  liable  only  for  his  own  share  of  the  outstanding 
notes,  and  after  a  long  delay  the  Governor  signed  it,  but  it 
was  nugatory,  for  it  could  not  repeal  the  act  of  Parliament. 

The  anti-Bubble  act  had  put  a  stamp  of  illegality  on  the 
Land  Bank  which  could  not  be  effaced.  The  General  Court 
was  obliged  to  recognize  this  fact.  A  committee  of  the 
House  was  appointed  in  1742  to  investigate  its  affairs. 
They  found  that  .£35,582  of  its  notes  were 
Termination  outstanding  and  they  recommended  that  the 
provisions  of  the  anti-Bubble  act  be  enforced 
against  those  proprietors  who  did  not  pay  up.  The  liquida- 
tion ran  through  a  quarter  of  a  century.  Nearly  everybody 
who  had  any  connection  with  it  was  ruined.  Petitions  for 
relief  came  into  the  General  Court  year  after  year  from 
members  who  said  that  they  had  paid  their  own  share  and 
that  of  others  and  that  they  could  pay  no  more.  In  1767 
its  ghost  reappeared  in  a  committee  report  saying  that 
,£1,740  of  its  notes  were  still  unredeemed  and  recommend- 
ing that  the  amount  be  assessed  against  the  surviving 
directors  and  the  estates  of  those  deceased.  In  the  follow- 
ing year  Benjamin  Jacobs,  one  of  the  partners,  having  been 
sued  and  cast  for  a  considerable  amount  of  its'  notes,  peti- 
tioned the  General  Court  for  relief.  And  here  the  Land 
Bank  of  1741  vanished  from  history. 

Although  the  Land  Bank  scheme,  examined  in  the  light 
of  the  present  day,  was  unsound  and  pernicious,  it  was  not 
dishonest.  Public  opinion  had  been  debauched 
^  colonial  bills  of  credit,  ideas  on  the  subject 
of  money  were  topsy-turvy,  and  there  was  no 
law  prohibiting  these  persons  from  issuing  notes  if  people 
were  willing  to  take  them.  At  the  time  when  the  Land  Bank 
fight  was  in  progress  (1742)  Parliament  passed  an  act 


258  REPRESENTATIVE  MONEY. 

amending  the  charter  of  the  Bank  of  England,  and  prohibit- 
ing any  other  body,  politic  or  corporate,  than  the  Bank  or 
any  partnership  of  less  than  six  persons,  from  issuing  cir- 
culating notes  "  in  that  part  of  Great  Britain  called  Eng- 
land." Thus,  says  Professor  Dunbar,  "the  exclusive  privi- 
lege of  the  Bank  did  not  prevent  the  issue  of  such  notes  by 
partnerships  having  only  six  partners  or  less,  nor  the  per- 
formance of  other  banking  functions  by  companies  or  part- 
nerships of  a  greater  number  of  partners.  Notes  continued 
to  be  issued  by  the  London  private  banking  houses,  some  of 
which  were  of  longer  standing  than  the  Bank  of  England 
itself,  and  by  country  bankers,  of  which  the  number  increased 
rapidly  in  the  second  half  of  the  eighteenth  century." l 

In  addition  to  the  colonial  banking  experiments  mentioned 
above  there  was  one  of  considerable  importance  at  New 
London,  Connecticut,  in  1732^  and  one  in  Charleston,  South 
Carolina,  in  I775,3  both  extremely  crude. 


CHAPTER  IV. 

FIRST  BANK  OF  THE  UNITED  STATES. 

THE  opinion  is  held  by  many  persons  of  good  education 
and  sound  judgment  that  a  new  Bank  of  the  United  States 
would  be  a  desirable  addition  to  our  national  furnishings. 
The  two  banks  of  this  kind  which  we  had  in  our  early 
history  did  serve  the  purpose  of  "  regulators  of  the  currency." 
They  put  an  end  to  grave  disorders  in  the  national  finances. 
They  were  useful  in  many  ways  and  they  gave  entire  satis- 

1  Chapters  on  the  Theory  and  History  of  Banking,  by  Charles  F, 
Dunbar,  p.  158.     See  also  Macleod,  i,  487  and  501. 

2  Bronson,  p.  42. 

3  Ramsay,  ii,  170. 


FIRST  BANK  OF  THE  UNITED  STA  TES.  259 

faction  to  the  business  community.      Both  of  them  stumbled 
over  politics  and  broke  their  necks,  and  this  without  any  in- 
tention on  their  own  part  to  meddle  with  poli- 

tics'  but  in  Spite  °f  their  utmost  efforts  not  to 
do  so.      If  any  persons  think  that  a  new  Bank 

of  the  United  States  would  be  more  fortunite  in  this  regard 
I  am  not  of  that  number. 

The  first  Bank  of  the  United  States  was  established  in 
1791  in  pursuance  of  a  report  made  by  Alexander  Hamilton, 
Secretary  of  the  Treasury.  Hamilton's  report 
is  in  the  main  a  sound  piece  of  reasoning. 
He  was  somewhat  in  advance  of  his  con- 
temporaries in  discerning  the  objections  to  bank  loans  on 
mortgage  security,  and  to  land  banking  in  general,  although 
he  had,  a  few  years  earlier,  written  a  long  letter  to  Robert 
Morris,  in  favor  of  a  bank  founded  on  landed  security. 
In  the  report  of  1791  he  took  ground  against  paper 
money  issued  by  the  Government,  either  directly  or 
through  a  bank  owned  by  itself,  and  his  arguments  are 
strongly  put. 

Hamilton  saw  clearly  how  a  bank  serves  as  a  manufactory 
of  credit,  and  how  it  economizes  the  use  of  capital.  He  had 
a  clear  understanding  of  the  nature  of  deposits.  This  is  the 
more  remarkable  since  there  was  no  text  book  at  that  time 
to  explain  it  to  him.  He  said  : 

"  Every  loan  which  a  bank  makes  is,  in  its  first  shape,  a 
credit  given  to  the  borrower  on  its  books,  the  amount  of 
which  it  stands  ready  to  pay,  either  in  its  own  notes,  or  in 
gold  or  silver,  at  his  option.  But,  in  a  great  number  of  cases, 
no  actual  payment  is  made  in  either.  The  borrower,  frequently, 
by  a  check  or  order,  transfers  his  credit  to  some  other  person, 
to  whom  he  has  a  payment  to  make ;  who,  in  his  turn,  is  as 
often  content  with  a  similar  credit,  because  he  is  satisfied 
that  he  can,  whenever  he  pleases,  either  convert  it  into  cash, 


260  REPRESENTATIVE  MONEY. 

or  pass  it  to  some  other  hand,  as  an  equivalent  for  it.  And 
in  this  manner  the  credit  keeps  circulating,  performing  in 
every  stage  the  office  of  money,  till  it  is  extinguished  by  a 
discount  with  some  person  who  has  a  payment  to  make  to 
the  bank,  to  an  equal  or  greater  amount.  Thus  large  sums 
are  lent  and  paid,  frequently  through  a  variety  of  hands, 
without  the  intervention  of  a  single  piece  of  coin." 

Congress  passed  the  bank  act  substantially,  in  ac- 
cordance with  his  recommendations.  The  chief  points 
were  these  : 

I.  The  bank  was  to  have  a  capital  of  $10,000,000,  divided 
into  25,000  shares  of  $400   each.      Eight   millions  of  the 
capital  stock  was  open  to  subscription  by  the  public,  one- 
fourth  to  be  paid  in  specie  and  three-fourths 

Composition  of  in  government  obligations  bearing  6  per  cent 
Capital.  interest.  The  other  $2,000,000  of  the  capital 

was  to  be  subscribed  by  the  United  States, 
payable  in  ten  equal  annual  installments  with  interest  at  6 
per  cent. 

II.  Each  shareholder  was  entitled  to  cast  one  vote  for 
one  share,  one  vote  for  the  next  two  shares,  and  so  on,  no 
shareholder  being  entitled  to  cast  more  than  thirty  votes. 
Foreign  shareholders  were    not  allowed  to  vote  by  proxy, 
and  therefore  practically  could  not  vote  at  all.    The  principle 
of  giving  power  to  the  minority  was  generally  adopted  in 
subsequent  State  bank  charters,  the  object  being  to  prevent 
banks  from  falling  under  the  control  of  a  few  persons. 

III.  Not  more  than  three-fourths  of  the  directors  were 
eligible  for  the  next  succeeding  year. 

IV.  The  bank  could  not  hold  real  estate  except  for  the 
immediate  accommodation  of  its  business,  but  it  was  not  for- 
bidden to  lend  on  mortgage  'security. 

V.  The  bank  could  not  become  indebted  for  a  greater 
amount  than  its  capital  stock,  over  and  above  the  amount  of 


FIRST  BANK  OF  THE  UNITED  STA  TES.  261 

its  deposits  ;  that  is,  the  deposits  were  not  to  be  counted  as 
liabilities  in  estimating  its  right  to  contract  debts.  In  case 
of  excess  the  directors  were  to  be  personally  liable  to  credit- 
ors of  the  bank,  but  directors  absent  or  dissenting  might 
exonerate  themselves  by  notifying  the  Presi- 
cTrcuiTtion  dent  of  the  United  States,  and  the  stock- 

holders, at  a  meeting  which  they  should  have 
the  power  to  call  for  that  purpose.  There  was  no  other 
limit  on  the  note  issues  of  the  bank  than  this.  It  meant 
substantially  that  the  circulating  notes  might  be  equal  in 
amount  to  the  capital  stock,  but  they  never  exceeded  one- 
half  of  it.  The  notes  were  receivable  for  all  government 
dues. 

VI.  The  head  of  the  Treasury  should  have  the  right  of 
inspecting  all  of  its  affairs  except  the  accounts  of  private 

individuals,  and  could  call  for  reports  as  often 
as  once  a  week  if  he  chose  to  do  so.     The 
notes  of  the  bank  should  be  receivable  for  all 
public  dues  as  long  as  said  notes  were  payable  in  gold  and 
silver  coin.     The  Treasury  was  not  required  to  deposit  the 
public  money  in  the  bank. 

VII.  The  bank  might  have  branches   wheresoever  the 
directors  should  see  fit,  but  only  for  the  purpose  of  discount 
and  deposit.     It  could  not  engage  in  trade  of  any  kind,  but 
might  sell  any  goods  which  it  had  been  obliged  to  take  as 
security  for  loans. 

VIII.  The  government  pledged  itself-  to  grant  no  other 
charter  for  a  bank  during  the  continuance  of  this  one,  which 
was  limited  to  twenty  years. 

There  were  long-winded  arguments  over  the  constitution- 
ality of  this  bank,  or  of  any  bank  to  be  chartered  by  Con- 
gress. The  Federalists  generally  took  the  affirmative  and 
the  Republicans  the  negative.  Washington  requested  three 
members  of  his  cabinet,  Randolph  (Attorney  General),  Jeffer- 


262  REPRESENTATIVE  MONEY. 

son  (Secretary  of   State),    and  Hamilton    (Secretary   of  the 
Treasury),  to  furnish  him  written  opinions  on  the  constitu- 
tionality of  the  bank,  Hamilton's  being  favor- 
ably1*1 a^e  and  tne  others'  unfavorable.     After  giv- 
ing them  careful  attention  he  signed  the  bill, 
which  had  passed  the   Senate  without  a  division  and  the 
House  by  39  to  20. 

In  a  speech  to  Congress  October  25,  1791,  Washington 
said  that  the  entire  capital  of  the  bank  was  subscribed  in 
one  day.  Jefferson,  whose  opposition  to  the  bank  was  ex- 
ceedingly bitter  from  beginning  to  end,  said  that  it  was  part 
of  a  disgraceful  private  speculation  in  which  members  of 
Congress  had  taken  part.  However  that  may  have  been,  it 
was  a  great  financial  success.  In  1809,  Sec- 
retary  Gallatin  reported  that  the  government 
had  made  a  profit  of  $671,860  on  the  sale  of 
its  shares  besides  receiving  dividends  at  the  average  rate  of 
8^6  per  cent  per  annum.  Of  the  25,000  shares  ($400  each) 
18,000  were  held  abroad  and  7,000  by  residents  of  the 
United  States,  the  latter  having  the  exclusive  power  of 
managing  the  bank.  The  outstanding  circulation  at  this 
time  was  $4,500,000;  specie  on  hand  $5,000,000;  deposits 
$8,500,000;  loans  and  discounts  $15,000,000,  consisting 
mostly  of  6o-day  paper.  The  bank  had  no  mortgage  secu- 
rities except  such  as  had  been  taken  to  secure  doubtful 
debts.  This  was  a  very  strong  position. 

The  bank  collected  the  bonds  of  importers  for  customs 
duties.  It  transferred  the  public  funds  from  place  to  place 
at  its  own  expense,  and  paid  the  money  on  the  order  of  the 
Treasurer  of  the  United  States  wherever  wanted.  It  had 
branches  at  Boston,  New  York,  Baltimore,  Norfolk,  Charleston, 
Savannah,  Washington  and  New  Orleans,  the  parent  bank  being 
at  Philadelphia.  Secretary  Gallatin  strongly  recommended 
the  renewal  of  the  charter,  which  would  expire  in  1811. 


FIRST  BANK  OF  THE  UNITED  STATES.  263 

A  contest  of  extreme  bitterness  ensued,  in  which  the  use- 
fulness of  the  bank  was  scarcely  considered.     There  was  an 
explosion  of  party  rage,  and  an  explosion   of 

Contest  over         private  rage  against  Mr.  Gallatin,  inside  the 

Renewal  of  . 

Charter.  dominant    party.      Undoubtedly    some    votes 

were  cast  adversely  for  constitutional  reasons. 
The  Federalists  had  lost  ground  pretty  steadily  since  the 
election  of  Jefferson  in  1800,  but  they  were  still  strong  in 
wealth  and  respectability.  They  had  established  the  bank 
against  Mr.  Jefferson's  ideas ;  and  he,  although  yielding  to 
Mr.  Gallatin  on  practical  measures  and  signing  various  bills 
supplementary  to  the  original  charter,  had  remained,  both 
in  his  administration  and  in  his  retirement,  a  consistent  foe 
to  it. 

President  Madison,  who,  as  'a  member  of  the  House,  had 
opposed  the  original  charter  on  the  ground  of  unconstitu- 
tionally, was  now  disposed  to  look  at  the  question  as  res 
adjudicata.     He  neither  favored  nor  opposed  a  new  charter. 
There  was  a  cabal  opposed  to  Mr.  Gallatin  which  had  its 
rincipal  seat  in  Pennsylvania,   its  leaders  being  William 
uane  and  Michael  Leib.     These  men  wanted  to  have  cer- 
in  changes  made  in  the  Federal  offices  in  Philadelphia, 
hich  Mr.  Gallatin  refused  on  public  grounds.     The  spoils- 
en  of  Pennsylvania  were  furious.     They  were  determined 
to  force  Gallatin  out  of  office  if  they  could,  and 
to  t*"8  end  they  opposed  everything  that  he 
favored  and   favored   everything  that  he  op- 
posed.   A  clique  in  Maryland  headed  by  the  Secretary  of  State, 
Robert  Smith,  and  his  brother,   Senator  Smith,  was  equally 
bitter  against  Gallatin  and  consequently  against  the  Bank. 

War  with  England,  and  perhaps  with  France,  was  now 
impending.  There  would  be  a  great  strain  upon  the  Treasury 
in  either  event.  Mr.  Gallatin  recommended  that  the  bank  be 
rechartered  with  a  capital  increased  to  $30,000,000,  and  that 


264  REPRESENTATIVE  MONEY. 

it  should  be  bound  to  lend  three-fifths  of  its  capital  to  the 
government  whenever  required  to  do  so,  and  that  it  should  pay 
interest  on  all  government  deposits  in  excess  of  $3,000,000. 
Of  the  new  capital  he  proposed  that  $15,000,000  should  be 
subscribed  by  such  States  as  might  desire  it, 
and  that  a  branch  should  be  established  in 
each  subscribing  State,  if  asked  for  by  the 
State.  Eighteen  thousand  shares  of  the  capital  of  the  exist- 
ing bank  were  held  abroad,  mostly  in  England.  This  fact 
was  seized  upon  by  the  enemies  of  the  bank  and  the  personal 
enemies  of  the  Secretary  to  inflame  popular  prejudice.  Anti- 
cipating this  ground  of  objection  Mr.  Gallatin  said  in  his 
report  of  March  2,  1809  : 

"  The  strongest  objection  against  the  renewal  of  the 
charter  seems  to  arise  from  the  great  portion  of  the  bank 
stock  held  by  foreigners,  —  not  on  account  of  any  influence  it 
gives  them  over  the  institution,  since  they  have  no  vote,  but 
of  the  high  rate  of  interest  payable  by  America  to  foreign 
countries,  on  the  portion  thus  held.  If  the  charter  is  not 
renewed,  the  principal  of  that  portion,  amounting  to  about 
7,200,000  dollars,  must,  at  once,  be  remitted  abroad  ;  but, 
if  the  charter  is  renewed,  dividends,  equal  to  an  interest  of 
about  8J/2  per  cent  a  year,  must  be  annually  remitted  in  the 
same  manner.  The  renewal  of  the  charter  will,  in  that 
respect,  operate,  in  a  national  point  of  view,  as  a  foreign 
loan,  bearing  an  interest  of  8^  per  cent  a  year.  That  in- 
convenience might,  perhaps,  be  removed,  by  a  modification 
in  the  charter,  providing  for  the  repayment  of  that  portion 
of  the  principal  by  a  new  subscription  to  the  same  amount, 
in  favor  of  citizens ;  but  it  does  not,  at  all  events,  appear 
sufficient  to  outweigh  the  manifest  public  advantages  derived 
from  the  renewal  of  a  charter." 

This  demonstration  of  the  impolicy  of  liberating  and 
sending  home  seven  millions  of  specie  at  a  time  when  we 


FIRST  BANK  OF  THE  UNITED  STATES.  265 

were  likely  to  need  every  dollar  of  coin  that  the  country 
contained  had  not  the  smallest  effect  on  the  anti-Federalist 
or  on  the  anti-Gallatin  faction,  except  to  increase  their  fury. 
Mr.  Desha,  a  representative  of  Kentucky  (February  12, 
1811),  considered  this  foreign  capital  one  of  the  engines  set 
to  work  to  overturn  civil  liberty.  He  had  no  doubt-  that 
George  III  was  a  principal  stockholder  and  that  he  would 
authorize  his  agent  in  this  country  to  bid  millions  for  a 
renewal  of  the  charter.  The  new  charter  was 
not  wanted  except  by  a  few  speculating 
merchants  who  had  become  involved  in  debt 
and  had  borrowed  money  from  "  this  foreign  bank."  These 
merchants  were  not  deserving  of  any  sacrifices  on  the  part 
of  the  government.  They  were  sending  in  petitions  and 
memorials  all  the  time  demanding  protection  to  commerce, 
and  then  flying  in  the  face  of  authority  and  trying  to  bring 
the  laws  [the  embargo]  into  ridicule.  The  only  way  to  save 
liberty,  in  his  opinion,  was  "  to  assist  in  strangling  this  infant 
Hercules  in  the  cradle,"  meaning  probably,  to  assist  Hercules 
in  strangling  this  serpent.  He  concluded  by  suggesting  that 
unless  the  British  Government  should  rescind  its  clandestine 
measures  affecting  our  rights,  then  rather  than  renew  the 
charter  of  the  bank  we  ought  to  confiscate  the  British  capital 
in  it  and  use  it  in  conquering  Canada,  because  so  long  as 
Great  Britain  held  Canada,  "  federalism,  or  if  gentlemen  like 
the  term  better,  aristocracy,  will  regularly  progress  and  finally 
convulse  your  government  to  its  center." 

This  sounds  now  like  very  wild  raving,  but  even  Jefferson 
thought  that  the  .bank  was  dangerous  to  free  institutions, 
apart  from  any  question  of  constitutionality.  In  1803,  when 
Gallatin  wanted  to  have  a  branch  bank  authorized  at  New 
Orleans  —  a  special  law  being  required  to  establish  branches 
in  the  territories  —  Jefferson's  anxieties  on  this  subject  broke 
out  afresh.  "  What  an  obstruction,"  he  wrote  to  the  Secre- 


266 


REPRESENTATIVE  MONEY. 


tary,  "  could  not  this  Bank  of  the  United  States,  with  all  its 
branch  banks,  be  in  time  of  war  ?  It  might  dictate  to  us  the 
peace  we  should  accept,  or  refuse  its  aids.  Ought  we  then 
to  give  further  growth  to  an  institution  so  powerful,  so  hos- 
tile ?  "  Gallatin  quietly  persisted,  saying,  "  Whenever  they 
shall  appear  to  be  really  dangerous  they  are  completely  in 
our  power  and  may  be  crushed."  Jefferson  yielded,  but  his 
opinion  remained  unchanged. 

The  bank  was  not  without  friends  among  the  Republicans. 
The  best  speech  made  for  the  new  charter  was  that  of 
Senator  Crawford  of  Georgia  —  a  masterly  effort  from  nearly 
all  points  of  view.  Mr.  Crawford  gives  us  a  glimpse  of 
journalism  in  his  day  : 

"  The  democratic  presses  in  these  great  States  have,  for 
more  than  twelve  months  past,  teemed  with  the  most  scur- 
rilous abuse  against  every  member  of  Congress  who  has 
dared  to  utter  a  syllable  in  favor  of  the  re- 

newal  of  the  bank  charter-  The  member  who 
dares  to  give  his  opinion  in  favor  of  the  re- 
newal of  the  charter,  is  instantly  charged  with  being  bribed  by 
the  agents  of  the  bank  —  with  being  corrupt  —  with  having 
trampled  upon  the  rights  and  liberties  of  the  People  —  with 
having  sold  the  sovereignty  of  the  United  States  to  foreign 
capitalists  —  with  being  guilty  of  perjury  by  having  violated 
the  Constitution.  Yes,  sir,  these  are  the  circumstances  under 
which  we  are  called  upon  to  reject  the  bill.  When  we  com- 
pare the  circumstances  under  which  we  are  now  acting,  with 
those  which  existed  at  the  time  when  the  law  was  passed  to 
incorporate  the  bank,  we  may  well  distrust  our  own  judgments. 
Sir,  I  had  always  thought  that  a  corporation  was  an  artificial 
body,  existing  only  in  contemplation  of  law  ;  but  if  we  can 
believe  the  rantings  of  our  democratic  editors  in  these  great 
States,  and  the  denunciations  of  our  public  declaimers,  it 
exists  under  the  form  of  every  foul  and  hateful  beast,  and 


FIRST  BANK  OF  THE  UNITED  STA  TES.  267 

bird,  and  creeping  thing.  It  is  a  Hydra;  it  is  a  Cerberus ; 
it  is  a  Gorgon ;  it  is  a  Vulture ;  it  is  a  Viper.  Yes,  sir,  in  their 
imaginations  it  not  only  assumes  every  hideous  and  frightful 
form,  but  it  possesses  every  poisonous,  deleterious  and 
destructive  quality.  Shall  we,  sir,  suffer  our  imaginations 
to  be  alarmed,  and  our  judgments  to  be  influenced,  by  such 
miserable  stuff  ?  Shall  we  tamely  act  under  the  lash  of  this 
tyranny  of  the  press  ?  No  man  complains  of  the  discussion 
in  the  newspapers  of  any  subject  which  comes  before  the 
Legislature  of  the  Union  ;  but  I  most  solemnly  protest  against 
the  course  which  has  been  pursued  by  these  editors,  in  rela- 
tion to  this  question.  Instead  of  reasoning,  to  prove  the 
unconstitutionality  of  the  law,  they  charge  members  of  Con- 
gress with  being  bribed  or  corrupted ;  and  this  is  what  they 
call  the  liberty  of  the  press.  To  tyranny,  under  whatever 
form  it  may  be  exercised,  I  declare  open  and  interminable 
war.  To  me  it  is  perfectly  indifferent  whether  the  tyrant  is 
an  irresponsible  editor,  or  a  despotic  monarch." 
He  concluded  with  the  following  words  : 
"Sir,  we  have  the  experience  of  twenty  years  for  our  guide. 
During  that  lapse  of  years  your  finances  have  been,  through 
the  agency  of  this  Bank,  skillfully  and  successfully  managed. 
During  this  period,  the  improvement  of  the  country,  and  the 
prosperity  of  the  nation,  have  been  rapidly 
Progressing.  Why,  then,  should  we,  at  this 
perilous  and  momentous  crisis,  abandon  a 
well  tried  system ;  faulty,  perhaps,  in  the  detail,  but  sound 
in  its  fundamental  principles?  Does  the  pride  of  opinion 
revolt  at  the  idea  of  acquiescing  in  the  system  of  your 
political  opponents?  Come!  and  with  me  sacrifice  your 
pride  and  political  resentments  at  the  shrine  of  practical 
good.  Let  them,  be  made  a  propitiatory  sacrifice  for  the 
promotion  of  the  public  welfare,  the  savor  of  which  will 
ascend  to  Heaven,  and  be  there  recorded  as  a  lasting,  an 


268  REPRESENTATIVE  MONEY. 

everlasting  evidence  of  your  devotion   to  the  happiness  of 
your  country." 

Senator  Lloyd  of  Massachusetts  made  a  very  strong  speech 
on  the  same  side,  supplying  some  interesting  items  of  bank- 
ing intelligence.  Speaking  of  the  great  convenience  to  the 
government  of  an  apparatus  by  which  payments  could  be 
made  at  specie  value  everywhere,  without  cost  for  the  trans- 
mission of  funds,  he  said  that  Penobscot  Bank  notes  would 
not  pass  in  Boston  at  all  times,  that  Boston  Bank  notes 
passed  with  difficulty  in  New  York  and  Philadelphia,  while 
those  of  New  York  were  not  readily  current  in  Washing- 
ton. 

Henry  Clay  held  the  opinion  emphatically  that  Congress 
had  no  power  to  grant  the  original  charter  or  to  renew  it. 
In  a  speech  (February  15,  1811)  he  said  :  "I  conceive  then, 
sir,  that  we  are  not  empowered  by  the  Constitution  nor  by 
any  practice  under  it  to  renew  the  charter  of  this  bank. 
Again  (March  2),  he  presented  a  report  deny- 
*n&  a  Pet^i°n  °f  tne  bank  for  an  extension  of 
its  charter  sufficiently  long  to  wind  up  its 
affairs.  The  report  says  that  "holding  the  opinion  (as  a 
majority  of  the  committee  do)  that  the  Constitution  did  not 
authorize  Congress,  originally,  to  grant  the  charter,  it  fol- 
lows as  a  necessary  consequence  of  that  opinion,  that  an  ex- 
tension of  it,  even  under  the  restrictions  contemplated  by 
the  stockholders,  is  equally  repugnant  to  the  Constitution." 
Mr.  Clay  shared  also  some  of  the  apprehensions  of  Mr. 
Desha,  touching  the  sinister  influence  of  foreign  capital. 
"Seven-tenths  of  its  capital,"  he  said,  "is  in  the  hands  of 
foreigners,  and  these  foreigners  chiefly  English  subjects. 
We  are  possibly  on  the  eve  of  a  rupture  with  that  nation. 
Should  such  an  event  occur  do  you  apprehend  that  the 
English  premier  would  experience  any  difficulty  in  obtaining 
the  entire  control  of  this  institution?" 


FIRST  BANK  OF  THE  UNITED  STA  TES.  269 

The  ineptitude  of  these  remarks  has  hardly  been  sur- 
passed in  the  annals  of  legislation.  In  the  first  place  the 
foreign  shareholders  could  not  vote.  Then,  the  American 
Secretary  of  the  Treasury  had  the  right  of  visitation  and  in- 
spection, so  that  nothing  could  be  done  by  the  English 
premier  without  his  immediate  knowledge,  and  as  Gallatin 
had  said  to  Jefferson  years  before,  "they  are  completely  in 
our  power  and  may  be  crushed."  Finally,  since  the  English 
premier  might  gain  control  of  the  bank's  capital  indirectly 
Mr.  Clay  proposed  to  send  seven-tenths  of  it  to  England, 
where  he  could  control  it  directly.  But  the  most  fantastic 
side  of  Mr.  Clay's  position  was  the  constitutional  side.  Five 
years  later  he  was  a  strong  advocate  of  the  charter  of  the 
Second  Bank  of  the  United  States,  saying  that  "that  which 
appeared  to  him  in  1811  under  the  state  of  things  then 
existing  not  to  be  necessary  to  the  general  government, 
seemed  now  to  be  necessary  under  the  present  state  of 
things.  Had  he  then  foreseen  what  now  exists  and  no  ob- 
jection had  lain  against  the  renewal  of  the  charter  other 
than  that  derived  from  the  Constitution  he  should  have 
voted  for  the  renewal."  l  The  flaw  in  this  reasoning  is  that 
in  1811  he  held  that  the  original  charter  of  1791  was  uncon- 
stitutional without  regard  to  circumstances. 

The  vote  was  taken  in  the  House  January  24,  1811,  on  a 
motion  to  postpone  indefinitely,  which  motion  prevailed  by 
a  majority  of  one  —  65  to  64.  The  vote  in  the  Senate  on  a 

similar  bill  (February  20)  was  a  tie — 17  to 
The  Bank  killed.  17,  whereupon  George  Clinton,  the  Vice- 

President,  gave  the  casting  vote  against  the 
bank.  It  was  accordingly  put  in  liquidation.  It,  paid  the 
shareholders  $434  for  each  share  of  $400.  The  country 
went  to  war  the  following  year  leaning  upon  the  State  banks 
for  financial  support.  All  except  those  of  New  England, 

1  Annals  of  Congress,  1815-1816,  p.  1194. 


270  REPRESENTATIVE  MONEY. 

and  a  very  few  in  the  West  and  South,  suspended  in  Sep- 
tember, 1814,  after  which  the  country  wallowed  in  irredeem- 
able paper,  at  all  sorts  of  discount,  for  several  years.  If  the 
bank  charter  had  been  renewed  in  1811,  it  is  almost  certain 
that  specie  payments  would  have  been  maintained.  This 
was  Mr.  Gallatin's  opinion.  In  an  essay  published  in  1831, 
after  alluding  to  the  banking  speculations  which  sprang  from 
a  desire  to  fill  the  void  left  by  the  Bank  of  the  United 
States,  —  120  new  banks  being  chartered  and  put  in  oper- 
ation in  the  space  of  three  years,  he  said : 

"It  is  our  deliberate  opinion  that  the  suspension  might 
have  been  prevented  at  the  time  when  it  took  place  had  the 
former  Bank  of  the  United  States  been  still  in  existence. 
The  exaggerated  increase  of  State  banks,  occasioned  by 
the  dissolution  of  that  institution,  would  not  have  occurred. 
That  bank  would  as  before  have  restrained 
0  hifon  a  within  proper  bounds  and  checked  their 

issues,  and  through  the  means  of  its  offices 
(branches)  it  would  have  been  in  possession  of  the  earliest 
symptoms  of  the  approaching  danger.  It  would  have  put 
the  Treasury  Department  on  its  guard ;  both  acting  in  con- 
cert would  certainly  have  been  able  at  least  to  retard  the 
event,  and  as  the  treaty  of  peace  was  ratified  within  less 
than  six  months  after  the  suspension  took  place,  that  catas- 
trophe would  have  been  altogether  avoided." 

So  the  first  Bank  of  the  United  States  stumbled  over 
politics  in  spite  of  itself,  and  disappeared. 


SECOND  BANK  OF  THE  UNITED  STATES.          271 


CHAPTER   V. 

SECOND  BANK  OF  THE  UNITED  STATES. 

IN  order  to  preserve  continuity,  rather  than  chronological 
order,  we  will  now  consider  the  Second  Bank  of  the  United 
States.  The  friends  of  the  first  bank  had  predicted  a  finan- 
cial crisis  as  a  consequence  of  the  non-renewal  of  the  charter. 
No  such  thing  happened,  but  disaster  came  a  little  later  in 
a  way  they  had  not  expected.  The  condition  of  the  country 
in  1814  was  pictured  by  Mr.  Grosvenor,  of  New  York,  in 
the  House,  in  the  following  words  : x 

"  This  war  has  become  entirely  defensive  ;  and  happy 
shall  we  be,  happy  beyond  all  our  hopes,  if  by  any  exertion 
we  shall  be  able  to  defend  from  invasion  the  very  soil  where, 
but  forty  years  ago,  the  banner  of  independence  first  floated 
in  the  breeze.  So  far  in  the  nature  of  things  is  conquest 
beyond  our  power,  that,  in  the  next  summer, 
a11  the  means  of  the  nation,  all  the  bravery  of 
the  people,  and  all  the  energies  of  the  govern- 
ment will  be  indispensable  to  preserve  our  cities  from  con- 
flagration, our  States  from  subjugation,  our  government 
from  dissolution.  As  a  first  and  indispensable  requisite  to 
these  objects,  we  turn  to  the  Treasury,  and  there  the  most 
appalling  views  are  presented.  We  find  it  empty,  approach- 
ing bankruptcy.  All  confidence  in  the  promises  of  govern- 
ment is  gone  ;  and  public  credit  has  become  a  spectre 
haunting  the  place  where  it  once  had  flourished." 

Mr.  Grosvenor  was  a  Federalist,  and  all  Federalists  were 
low-spirited  at  that  time,  but  perhaps  nobody  was  more  so 
than  President  Madison  himself  on  the  25th  of  August, 
when  he  and  his  wife,  fugitives  from  the  burning  capital^ 

1  Annals  of  Congress,  1814-1815,  p.  667. 


272  REPRESENTATIVE  MONEY. 

were  seeking  each  other  at  night,  in  the  midst  of  a  terrible 
thunderstorm,  in  a  Virginia  forest.1 

The  banks  had  suspended  specie  payments  except  in  New 
England,  and  their  notes  were  circulating  at  15  to  30  per 
cent  discount.  The  government  had  defaulted  on  the  in- 
terest of  the  public  debt.  What  money  it  had  was  in  the 
suspended  banks  and  could  not  be  moved  from  one  place  to 
another.2  Naturally  men's  minds  reverted  to  the  Bank  of 
the  United  States.  During  its  lifetime  the  bank  had  regu- 
lated the  currency,  besides  helping  the  government  in  critical 
times.  It  had  achieved  this  end  by  the  force  of  example 
rather  than  by  overt  act.  Its  own  notes  were 
ntS  always  equal  to  specie.  The  State  banks 
were  obliged  to  keep  their  notes  up  to  the 
same  standard,  since  otherwise  they  would  be  thrown  out 
by  the  great  bank  and  no  longer  be  received  for  govern- 
ment dues,  and  in  the  principal  cities  their  best  customers 
would  transfer  their  accounts  to  the  bank  or  its  branches. 
The  phrase  "Regulator  of  the  Currency,"  as  applied  to  the 
two  Banks  of  the  United  States,  has  no  other  significance, 
but  this  was  discovered  to  be  of  immense  importance  when 
suspension  took  place  in  September,  1814. 

Earlier  in  the  year  there  had  been  stirrings  of  public 
opinion  in  favor  of  a  new  bank  and  the  House  of  Represen- 
tatives had  referred  the  subject  to  a  special 
Dallas'"7  committee.     On  trie  iyth  of  October,  the  new 

Secretary  of  the  Treasury,  Mr.  Dallas,  recom- 
mended that  a  national  bank  be  incorporated  with  a  capital 

1  Ingersoll's  History  of  the  Second  War  with  Great  Britain,  ii,  208. 

2  "The  government  might  possess  immense  resources  in  one  State 
and  be  totally  bankrupt  in  another ;  it  might  levy  taxes  to  the  amount 
of  the  whole  circulating  medium  and  yet  have  only  its  own  notes  avail- 
able for  payment  of  debt ;  it  might  borrow  hundreds  of  millions  and 
be  none  the  better  for  the  loan."    History  of  the  U.  S.,  by  Henry  Adams, 
viii,  215. 


SECOND  BANK  OF  THE  UNITED  STA  TES.          273 

of  $50,000,000.     Mr.  Dallas  voiced  the  common  opinion  in 
taking  strong  ground  against  legal  tender  notes  : 

"  Whether  the  issues  of  a  paper  currency  (he  said)  pro- 
ceed from  the  national  treasury  or  from  a  national  bank,  the 
acceptance  of  the  paper  in  a  course  of  payments  and  receipts 
must  be  forever  optional  with  the  citizens.  The  extremity 
of  that  day  cannot  be  anticipated  when  any  honest  and  en- 
lightened statesman  will  again  venture  upon  the  desperate 
expedient  of  a  tender  law." 

Mr.  Dallas's  chief  aim  was  to  secure  financial  aid  to  the 
government.  Daniel  Webster  was  then  serving  his  first 

term  in  Congress  as  a  representative  of  New 
Daniel  Webster.  Hampshire.  He  took  the  view  that  a  Bank 

of  the  United  States  ought  to  be  constructed 
on  other  foundations  than  the  temporary  needs  of  the  public 
treasury.  Mr.  Dallas  proposed  a  bank  with  a  capital  of 
$50,000,000,  only  on^-tenth  specie  and  the  balance  govern- 
ment securities  of  one  kind  or  another,  the  bank  to  lend 
$30,000,000  to  the  government  (which  could  only  be  its 
own  notes),  and  to  have  a  right  to  suspend  specie  payments 
in  certain  contingencies.  Mr.  Webster  opposed  this  plan, 
January  2,  1815,  and  in  doing  so  gave  Congress  a  foretaste 
of  that  superb  diction  that  stamped  him  the  greatest  of 
American  orators.  He  said  inter  alia: 

"  I  am  sure,  sir,  that  the  advantages  which  would  at  pres- 
ent result  from  any  bank  are  greatly  overrated.  To  look  to 
a  bank  as  a  source  capable  not  only  of  affording  a  circulat- 
ing medium  to  the  country,  but  also  of  supplying  the  ways 
and  means  of  carrying  on  the  war,  especially  at  a  time  when 

the  country  is  without  commerce,  is  to  expect 
Revenue"6  n0t  rnuch  more  than  will  ever  be  obtained.  Such 

high-wrought  hopes  can  end  only  in  disap- 
pointment. The  means  of  supporting  an  expensive  war  are 
not  of  quite  so  easy  acquisition.  Banks  are  not  revenue. 


274  REPRESENTATIVE  MONEY. 

They  cannot  supply  its  place.  They  may  afford  facilities 
to  its  collection  and  distribution.  They  may  furnish,  with 
convenience,  temporary  loans  to  government,  in  anticipa- 
tion of  its  taxes,  and  render  important  assistance  in  divers 
ways  to  the  general  operations  of  finance.  They  are  useful 
to  the  State,  in  their  proper  place  and  sphere  ;  but  they  are 
not  the  sources  of  national  income. 

"  The  fountains  of  revenue  must  be  sunk  deeper.  The 
credit  and  circulation  of  bank  paper  are  the  effects,  rather 
than  the  cause,  of  a  profitable  commerce  and  a  well  ordered 
system  of  finance.  They  are  the  proofs  of 
national  wealth  and  prosperity,  not  the  founda- 
tions of  them.  Whoever  shall  attempt  to  re- 
store the  fallen  credit  of  this  country  by  the  creating  of  new 
banks,  merely  that  they  may  create  new  paper,  and  that 
government  may  have  a  chance  of  borrowing,  where  it  has 
not  borrowed  before,  will  find  himself  miserably  deceived. 
It  is  under  the  influence  of  no  such  vain  hopes  that  I  yield 
my  assent  to  the  establishment  of  a  bank  on  safe  and  proper 
principles.  The  principal  good  I  expect  from  it  is  rather 
future  than  present.  I  do  not  see,  indeed,  that  it  is  likely 
to  produce  evil  at  any  time.  In  times  to  come  it  will,  I  hope, 
be  useful.  '. 

"  Whenever  bank  notes  are  not  convertible  into  gold  or 
silver  at  the  will  of  the  holder,  they  become  of  less  value 
than  gold  and  silver.  All  experiments  on  this  subject  have 
come  to  the  same  result.  It  is  so  clear,  and  has  been  so 
universally  admitted,  that  it  would  be  waste  of  time  to  dwell 
upon  it.  The  depreciation  may  not  be  sensibly  perceived 
the  first  day  or  the  first  week  it  takes  place.  It  will  first  be 
discerned  in  what  is  called  the  rise  of  specie ;  it  will  next  be 
seen  in  the  increased  price  of  all  commodities. 

"  The  circulating  medium  of  a  commercial  community  must 
be  that  which  is  also  the  circulating  medium  of  other  com- 


SECOND  BANK  OF  THE  UNITED  STATES.  275 

mercial  communities,  or  must  be  capable  of  being  converted 
into  that  medium  without  loss.  It  must  be  able,  not  only  to 
pass  in  payments  and  receipts  between  individuals  of  the 
same  society  or  nation,  but  to  adjust  and  dis- 
charge the  balance  of  exchanges  between  dif- 
ferent nations.  It  must  be  something  which 
has  a  value  abroad,  as  well  as  at  home,  and  by  which  foreign 
as  well  as  domestic  debts  can  be  satisfied.  The  precious 
metals  alone  answer  these  purposes. 

"  They  alone,  therefore,  are  money,  and  whatever  else  is  to 
perform  the  offices  of  money  must  be  their  representative, 
and  capable  of  being  turned  into  them  at  will.  So  long  as 
bank  paper  retains  this  quality,  it  is  a  substitute  for  money ; 
divested  of  this,  nothing  can  give  it  that  character. 

"  No  solidity  of  funds,  no  sufficiency  of  assets,  no  con- 
fidence in  the  solvency  of  banking  institutions  has  ever 
enabled  them  to  keep  up  their  paper  to  the  value  of  gold 
and  silver  any  longer  than  they  paid  gold  and  silver  for  it 
on  demand.  This  will  continue  to  be  the  case  so  long  as 
these  metals  shall  continue  to  be  the  standard  of  value  and 
the  general  circulating  medium  among  nations.  .  .  . 

"  Other  institutions,  setting  out  perhaps  on  honest  prin- 
ciples, have  fallen  into  discredit  through  mismanagement  or 
misfortune.  But  this  bank  is  to  begin  with  insolvency.  It 
is  to  issue  its  bills  to  the  amount  of  thirty 
millions  at  least,  when  everybody  knows  it 
cannot  pay  them.  It  is  to  commence  its  ex- 
istence in  dishonor.  It  is  to  draw  its  first  breath  in  disgrace. 
The  promise  contained  in  the  first  note  it  sends  forth,  is  to 
be  a  false  promise  ;  and  whoever  receives  the  note,  is  to  take 
it  with  the  knowledge  that  it  will  not  be  paid,  according  to 
the  terms  of  it.  ... 

"  The  credit  of  this  institution  is  to  be  founded  on  public 
funds,  not  on  private  property  or  commercial  credit.  It  is 


276  REPRESENTATIVE  MONEY. 

to  be  a  financial,  not  a  commercial  bank.  Its  credit,  there- 
fore, can  hardly  be  better  at  any  time  than  the  credit  of  the 
government.  If  the  stocks  be  depreciated,  so  of  course 
must  everything  be  which  rests  on  the  stocks. 

"  It  would  require  extraordinary  ingenuity  to  show  how  a 
bank  which  is  founded  on  the  public  debt,  is  to  have  any 
better  reputation  than  the  debt  itself.  It  must  be  some  very 
novel  invention  which  makes  the  superstructure  keep  its 
place  after  the  foundation  has  fallen.  The  argument  seems 
to  stand  thus  :  The  public  funds,  it  is  admitted,  have  little 
credit ;  the  bank  will  have  no  credit  which  it  does  not  borrow 
of  the  funds  ;  but  the  bank  will  be  in  full  credit."  1 

The  final  vote  was  taken  the  same  day  that  Mr.  Webster 

spoke,  and  stood  81  to  80.     Then  the  speaker  (Mr.  Cheves 

of  South  Carolina)  voted  in  the  negative,  making  a  tie,  which 

rejected  the  bill.    A  reconsideration  was  moved 

™d  vft!>ePdaSSed  by  Mr'  Hal1  of  Georgia  and  was  carried,  the  bill 
was  sent  to  a  select  committee  and  amended  in 
substantial  accord  with  Mr.  Webster's  views  and  passed  by 
120  to  37.  After  some  amendment  by  the  Senate  it  was 
sent  to  President  Madison,  who  vetoed  it  on  the  3oth  of 
January,  1815,  not  on  constitutional  grounds  but  because  it 
did  not  furnish  sufficient  financial  aid  to  the  government. 

The  Senate  immediately  took  up  the  original  Dallas  bill 
and  passed  it  on  the  nth  of  February,  by  1 8  to  1 6.  On  the 
1 7th  the  House  postponed  it  indefinitely  by  74  to  73.  News 
of  peace  had  been  received  on  the  i3th. 

The  war  had  come  to  an  end.  The  Treasury  was  no 
longer  in  the  throes  of  the  preceding  year,  yet  Mr.  Madison 
in  his  message  of  December  5,  1815,  suggested  a  national 
bank  as  a  suitable  instrumentality  for  bringing  about  a  re- 
sumption of  specie  payments.  It  was  scarcely  more  than  a 
hint,  but  it  was  accompanied  by  an  explicit  recommendation 

1  Annals  of  Congress,  1814-1815,  pp.  1015-1022. 


SECOND  BANK  OF  THE  UNITED  STATES.          277 

from  Secretary  Dallas,  who,  a  few  days  later,  submitted  a 
plan  in  detail  for  this  purpose.  It  was  to  have  a  capital  of 
$35,000,000,  one-fifth  to  be  subscribed  by  the 
Second  Bank  government.  Of  the  remainder,  one-fourth 
should  be  coin  and  three-fourths  might  be  either 
coin  or  government  securities,  and  the  bank  was  to  pay  a 
bonus  of  $1,500,000  for  an  exclusive  charter  for  twenty  years. 
The  bill  was  reported  by  Mr.  Calhoun,  in  the  House,  on  the 
8th  of  January,  1816,  and  was  supported  by  him  in  a  speech 
replete  with  good  sense.  He  considered  the  restoration 
of  specie  payments  indispensable  and  the  bank  the  most 
appropriate  agency  for  accomplishing  that  end. 

"A  national  bank,"  he  said,  "paying  specie  itself,  would 
have  a  tendency  to  make  specie  payments  general,  as  well 
by  its  influence  as  by  its  example.  It  will  be  the  interest  of 
the  national  bank  to  produce  this  state  of  things ;  because, 
otherwise,  its  operations  will  be  greatly  circumscribed,  as  it 
must  pay  out  specie  or  national  bank  notes ;  for  one  of  the 
first  rules  of  such  a  bank  would  be  to  take  the  notes  of  no 
bank  which  did  not  pay  in  gold  and  silver.  A  national  bank 
of  thirty-five  millions,  with  the  aid  of  those  banks  which  are 
at  once  ready  to  pay  specie,  would  produce  a  powerful  effect 
all  over  the  Union.  Further,  a  national  bank  would  enable 
the  government  to  resort  to  measures  which  would  make 
it  unprofitable  to  banks  to  continue  the  violation  of  their 
contracts,  and  advantageous  to  return  to  the 
observation  of  them.  The  leading  measure  of 
this  character  would  be  to  strip  the  banks 
refusing  to  pay  specie  of  all  the  profits  arising  from  the 
business  of  the  government  —  to  prohibit  deposits  with  them, 
and  to  refuse  to  receive  their  notes  in  payment  of  dues  to 
the  government."  How  far  such  measures  would  be  effica- 
cious, in  producing  a  return  to  specie  payments,  he  was 
unable  to  say ;  but  it  was  as  far  as  he  would  be  willing  to  go 


278  REPRESENTATIVE  MONEY. 

at  the  present  session.  If  they  persisted  in  refusing  to 
resume  payments  in  specie,  Congress  must  resort  to  measures 
of  a  deeper  tone,  which  they  had  in  their  power. 

Mr.  Webster  took  a  position  different  from  that  of  the 
previous  year.  Then  he  was  willing  to  support  a  bank  ful- 
filling certain  conditions,  as  an  instrument  of  commerce. 
Now  he  did  not  think  there  was  any  use  for  a  bank  and  he 
did  not  think  that  it  would  help  to  restore  specie  payments. 
The  right  way  to  do  this,  he  said,  was  for  the  government 
to  refuse  to  receive  the  notes  of  suspended 
banks  for  duties-  The  suspended  banks  were 
cheats.  They  were  doing  a  regular  banking 
business  and  making  large  profits  while  they  were  not  meeting 
their  own  paper.  They  were  also  speculating  in  government 
securities.  They  had  taken  these  securities  during  the  war. 
They  could  sell  them  now  and  with  the  proceeds  redeem 
their  depreciated  notes.  He  instanced  the  Bank  of  Penn- 
sylvania, which  was  in  full  operation  with  a  capital  of 
$2,500,000,  loans  and  discounts  $4,133,000,  government 
bonds  $1,811,000,  and  yet  did  not  redeem  its  own  notes. 
Later  in  the  year  Mr.  Webster  introduced  a  bill  directing  the 
Secretary  of  the  Treasury  to  take  steps  to  collect  all  gov- 
ernment dues  in  specie,  and  made  a  powerful  speech  on  it 
which  secured  its  passage,  although  Mr.  Calhoun  had  pre- 
viously made  a  similar  attempt  and  had  failed.  Mr.  Webster 
also  moved  an  amendment  to  the  bank  bill,  that  it  should 
pay  its  deposits  as  well  as  its  notes  in  specie,  and  it  was 
adopted.  This  amendment  marked  a  step  in  advance,  in 
the  science  of  banking  in  this  country. 

John  Randolph  opposed  the  bill.     He  was 

John  Randolph,     opposed  to  all  banks.     If  the  State  banks  were 

unable   to  pay   specie,   they  were  bankrupts. 

If  they  were  able  to  pay  and  would  not,  they  were  fraudulent 

bankrupts.     They  had  lost  all  shame.     They  exemplified  the 


SECOND  BANK  OF  THE  UNITED  STATES.          279 

maxim  that  men  combined  together  would  do  collectively  what 
every  member  of  the  combination  would  spurn  individually. 
To  pass  this  bill  would  be  like  setting  fire  to  the  house  in 
order  to  get  rid  of  the  rats. 

The  bill  passed  the  House,  March  14,  by  80  to  71  and 
the  Senate,  April  3,  by  22  to  12,  and  was  approved,  April  10, 
by  President  Madison. 

It  differed  little  from  the  charter  of  the  former  bank.  The 
directors  might  establish  branches  wherever  they  pleased 
within  the  States  or  territories,  and  they  did  establish  twenty- 
five.  Foreign  shareholders  were  not  allowed  to  vote  either 
in  person  or  by  proxy.  Section  16,  regulating  the  public 
deposits,  was  in  these  words  :  "  That  the  deposits  of  the 
money  of  the  United  States  in  places  in  which 
Public  Deposits,  the  said  bank  or  branches  thereof  may  be 
established  shall  be  made  in  said  bank  or 
branches  thereof,  unless  the  Secretary  of  the  Treasury  shall 
at  any  time  otherwise  order  and  direct ;  in  which  case  the 
Secretary  of  the  Treasury  shall  immediately  lay  before  Con- 
gress, if  in  session,  and  if  not,  immediately  after  the  com- 
mencement of  the  next  session,  the  reasons  of  such  order  or 
direction."  The  bank  was  forbidden  "to  purchase  any 
public  debt  whatsoever." 

In  case  the  bank  should  fail  to  pay  any  note,  obligation, 
or  deposit  in  specie  on  demand,  it  should  forfeit  twelve  per 
cent  per  annum  on  the  amount  of  the  claim.  The  gov- 
ernment's subscription  of  $7,000,000  might  be  paid  either  in 
money  or  in  its  own  obligations  bearing  5  per  cent  interest. 
It  was  wholly  paid  by  the  latter,  i.e.,  by  a  stock  note,  and  the 
note  was  not  fully  paid  until  1831. 

The  charter  of  the  bank  was  made  the  basis  of  a  shame- 
ful speculation,  which  brought  it  to  the  verge  of  ruin  within 
two  years.  The  law  provided  that  the  stock  subscriptions 
of  individuals  should  be  paid  in  three  installments  :  30  per 


280'  REPRESENTATIVE  MONEY. 

cent  at  the  time  of  subscribing,  35  per  cent  in  six  months, 
and  35  per  cent  in  twelve  months.  One-fourth  of  the  private 
subscriptions  ($7,000,000)  should  be  paid  in  specie  and 
three-fourths  in  specie  or  in  the  funded  debt  of  the  United 

States.  When  the  second  installment  came 
BeginXfs.  due'  only  $324>°°°  was  paid  in  specie  where 

$2,800,000  was  due  ;  and  for  the  third,  only  a 
trifling  amount  of  specie  or  of  anything  else.  The  bank  had 
discounted  the  notes  of  the  stockholders  on  the  pledge  of 
their  stock,  to  the  amount  of  more  than  eight  million  dollars. 
It  also  allowed  the  stock  to  be  sold  and  transferred  by  the 
subscribers  before  it  was  paid  for.  This  caused  a  great 
deal  of  trading  in  shares  and  a  rapid  advance  in  the  price. 
When  they  rose  above  par  the  bank  loaned  more  than  par 
on  them.  In  August,  1817,  it  authorized  loans  as  high  as 
$125  on  $100  to  shareholders  who  would  furnish  other 
security  for  the  extra  $25.  This  was  easily  furnished  by  the 
shareholders  endorsing  for  each  other.  When  called  to  ac- 
count for  this  by  a  committee  of  Congress,  the  directors  said 
that  they  had  merely  followed  the  example  of  the  local 
banks  of  New  York,  which  had  advanced  120  on  bank 
shares.  This  was  not  true.  As  the  loans  to  shareholders 
could  be  renewed  at  the  discretion  of  the  President  and 
Cashier,  there  was  no  reason  why  the  unpaid  shares  should 
ever  be  paid  or  why  the  money  should  not  be  returned  on 
those  that  had  been  paid. 

All  these  facts  and  many  others  quite  as  bad,  were  brought 
out  by  a  Congressional  investigation  in  January,  1819. 
Among  the  requirements  of  the  charter  was  one  that  there 
should  be  no  dividends  on  shares  that  were  not  fully  paid  for. 
This  provision  had  been  systematically  violated.  The  presi- 
dent and  cashier  of  the  Baltimore  branch  had  borrowed  nearly 
$2,000,000  on  the  pledge  of  their  shares  taken  at  a  premium, 
and  then  helped  themselves  to  $1,540,000  more  without  the 


SECOND  BANK  OF  THE  UNITED  STA  TES.  281 

knowledge  of  their  directors,  or  of  the  parent  bank.     The  loss 

thus  incurred  amounted  to  $1,671,224.87.     The  bank  at  this 

time  was  really  insolvent.     It  was  held  up  only 

The  Bank  on         by  the  government's  deposits,  which  amounted 
the  Verge  of  .   .         ....        ... 

to  eight  million  dollars.     It  was  saved  from  im- 


pending bankruptcy  by  Mr.  Langdon  Cheves, 
of  South  Carolina,  who  became  its  president  in  March,  1819. 
One  of  his  measures  of  relief  was  the  borrowing  of  $2,500,000 
in  Europe.  Another  was  the  requirement  that  the  loans 
made  on  the  security  of  the  bank's  shares  should  be  paid 
at  the  rate  of  5  per  cent  every  sixty  days.  "  Even  this  small 
reduction,"  said  Mr.  Cheves  in  his  first  official  report,  "  was 
the  subject  of  loud,  angry  and  constant  remonstrance  among 
the  borrowers,  who  claimed  the  privileges  and  favors  which 
they  contended  were  due  to  stockholders." 

This  episode  teaches  the  lesson,  that  a  bank  ought  never 
to  lend  money  on  the  pledge  of  its  own  shares  ;  since  it  can 

realize  on  the  security  only  by  impairing  its 
Lending:  Money  own  capital.  If  a  bank  starts  business  with  a 
Shares.  fully  paid  capital  of  $100,000  and  then  lends 

this  amount  on  the  security  of  the  shares  and 
is  obliged  to  take  the  shares  for  the  debt,  it  simply  cuts  its 
own  throat.  This  is  what  the  Bank  of  the  United  States 
did  in  1817.  If  the  eight  millions  of  deposits  which  kept  it 
afloat  had  belonged  to  private  individuals,  instead  of  the 
government,  there  would  have  been  a  run  on  it  which  would 
inevitably  have  compelled  its  suspension. 

The  bank  was  put  in  a  solvent  condition  by  Mr.  Cheves, 
and  in  the  course  of  the  next  ten  years  became  so  imbedded 
in  the  policy  of  the  country  that  when  President  Jackson,  in 
his  first  annual  message  spoke  of  it  in  a  hostile  tone,  there 
were  not  ten  persons  in  the  United  States  who  could  imagine 
what  he  meant.  This  allusion  was  in  the  President's  mes- 
sage of  December,  1829,  as  follows  : 


282  REPRESENTATIVE  MONEY, 

"The  charter  of  the  Bank  of  the  United  States  expires  in 
1836,  and  its  stockholders  will  most  probably  apply  for  a  re- 
newal of  their  privileges.  In  order  to  avoid  the  evils  re- 
sulting from  precipitancy  in  a  measure  involving  such  im- 
portant principles,  and  such  deep  pecuniary  interests,  I  feel 
that  I  cannot,  in  justice  to  the  parties  interested,  too  soon 
present  it  to  the  deliberate  consideration  of 
President  Jack-  the  Legislature  and  the  people.  Both  the  con- 
tack,  stitutionality  and  the  expediency  of  the  law 
creating  this  bank  .are  well  questioned  by  a 
large  portion  of  our  fellow-citizens ;  and  it  must  be  admitted 
by  all,  that  it  has  failed  in  the  great  end  of  establishing  a 
uniform  and  sound  currency.  Under  these  circumstances, 
if  such  an  institution  is  deemed  essential  to  the  fiscal  oper- 
ations of  the  government,  I  submit  to  the  wisdom  of  the 
Legislature  whether  a  national  one,  founded  upon  the  credit 
of  the  government  and  its  revenues,  might  not  be  devised, 
which  would  avoid  all  constitutional  difficulties,  and  at  the 
same  time,  secure  all  the  advantages  to  the  government  and 
country  that  were  expected  to  result  from  the  present  bank." 

This  statement  was  received  with  mild  surprise  by  the 
great  body  of  the  President's  political  supporters  both  in 
and  out  of  Congress.  The  bank's  charter  had  still  seven 
years  to  run  and  nobody  had  yet  taken  thought  of  the  sub- 
ject of  a  renewal ;  or  rather,  all  who  had  thought  of  it  had 
expected  a  renewal  as  a  matter  of  course.  Jackson's  asser- 
tion that  the  bank  had  "failed  in  the  great  end  of  establish- 
ing a  uniform  and  sound  currency"  was  distinctly  false,  but 
he  supposed  it  was  true.  The  bank  had 

Important  Ser-     brought   the   currency  of  the   country  into  a 

vices  of  the 

Bankt  wholesome  state  amid  much  tribulation,  and 

had  incurred  bitter  hostility  in  the  South  and 
West  by  compelling  the  local  banks  to  redeem  their  notes. 
This  was  exactly  what  it  was  chartered  for,  yet  the  local 


SECOND  BANK  OF  THE  UNITED  STATES.          283 

banks  persuaded  their  customers  and  would-be  borrowers 
that  the  great  bank  disabled  them  from  granting  the  accom- 
modation which  they  would  gladly  give,  by  calling  on  them 
for  specie.  The  word  "monster,"  which  later  became  such 
an  effective  catch-word  in  the  bank  war,  was  first  applied  to 
the  bank  in  Kentucky  because  it  would  not  allow  the  notes 
of  the  local  banks  to  accumulate  as  deposits  in  its  branches 
without  redemption.  To  have  done  so  would  have  been 
simply  to  transfer  its  capital  to  those  banks  without  interest. 
The  public  being  entitled  to  draw  gold  from  the  branches 
for  their  deposits,  or  to  call  for  drafts  on  Eastern  cities  at 
the  current  rate  of  exchange,  or  to  pay  their  own  maturing 
obligations  at  the  branches  with  the  same,  it  was  absolutely 
necessary  for  them  to  call  on  the  local  banks 
to  redeem  their  n°tes,  tmt  the  people  did  not 
so  understand  it.  They  thought  that  the 
notes  would  float  far  and  wide  and  never  give  trouble  if 
they  were  not  gathered  up  by  the  branches  of  the  United 
States  Bank  and  presented  for  redemption.  Kentucky  now 
had  forty  banks  based  on  moonshine  and  was  passing 
through  an  era  of  wild  speculation,  soon  to  be  followed  by 
reaction,  bankruptcy,  stay  and  replevin  laws,  repudiation, 
and  war  on  the  judiciary,  both  State  and  Federal,  the  whole 
passing  into  history  under  the  name  of  Kentucky  Relief.1 
Intense  feeling  against  the  Bank  of  the  United  States  was 
thus  engendered  without  the  least  foundation.  In  the  vicis- 
situdes of  republics  debtors  have  played  a  leading  part  from 
the  earliest  times.  Appian,  in  his  history  of  the  civil  wars 
of  the  Romans,  mentions  the  cancelling  of  debts  (x/aecov 
aTTo/coTT^s)  as  one  of  the  four  causes  of  those  wars. 

The  same  frenzy  existed  in  Ohio  as  in  Kentucky. 
Branches  had  been  established  at  Chillicothe  and  Cincin- 
nati. An  attempt  was  made  to  drive  them  out  of  the  State 

1  See  The  Life  of  Andrew  Jackson,  by  W.  G-  Sumner,  pp.  119-136, 


284  REPRESENTATIVE  MONEY. 

by  taxing  each  of  them  $50,000  per  annum.     They  refused 
to  pay  and  appealed  to  the  courts.    The  State  officers  broke 

open  their  vaults  and  carried  off  more   than 
Ohio  Frenzy.        the  amount   of  the   tax,  and  lodged  it  in  the 

State  Treasury  at  Columbus.     What  followed 
is  thus  described  by  Professor  McMaster  :  l 

"For  this  act  the  auditor,  his  agents,  and  the  State 
treasurer  were  sued  by  the  bank,  and  while  the  suits  were 
still  pending  the  legislature  assembled  and  began  an  investi- 
gation. The  times  were  now  hard  indeed.  All  the  fine 
visions  of  the  speculators,  the  paper-money  men,  the  bank 
men  had  vanished.  Bankruptcy  and  debt  were  everywhere. 
Stay  laws,  replevin  laws,  indorsement  laws,  relief  laws  of 
every  sort  were  the  order  of  the  day.  Nothing  was  so  hate- 
ful now  as  a  bank,  and  above  all  the  Bank  of  the  United 
States.  The  Supreme  Court  had  decided  that  a  State  could 
not  tax  it.  But  Ohio  adopted  and  affirmed  the  Virginia  and 
Kentucky  resolutions  of  1798  and  1800;  hurled  a  defiance 
at  the  Supreme  Court,  told  it  that  acquiescence  was  not  the 
necessary  consequence  of  its  decisions,  and  passed  'an  act 
to  withdraw  from  the  Bank  of  the  United  States  the  protec- 
tion of  the  laws  of  this  State  in  certain  cases.'  If  the  bank 
gave  notice  to  the  Governor  of  its  willingness  to  stop  the 
suits  against  the  State  officers,  and  to  submit  to  a  four-per- 
cent tax  on  its  dividends,  or  leave  the  State,  the  Governor 
might  suspend  the  law  by  proclamation.  If  it  did  not,  then 
every  jailor  was  forbidden  to  receive  into  his  custody  any 
person  committed  at  the  suit  of  the  bank,  or  for  any  injury 
done  to  it.  Every  judicial  officer  was  prohibited  to  take 
acknowledgment  of  conveyances  when  the  bank  was  a  party, 
and  every  recorder  from  receiving  and  entering  them.  No- 
taries-public were  prevented  from  protesting  bills  or  notes 
held  by  the  bank  and  made  payable  to  it;  and  justices  of 

1  In   The  Forum  magazine,  April,  1895. 


SECOND  BANK  OF  THE  UNITED  STA  TES.          285 

the  peace,  judges,  and  grand  juries  could  no  longer  take 
cognizance  of  any  wrong  committed  on  the  property  of  the 
bank,  though  it  were  burglary,  robbery,  or  arson.  The 
bank  would  not  discontinue  the  suits,  nor  leave  the  State,  so 
the  law  went  into  effect,  and  in  September,  1820,  the  Bank 
of  the  United  States  became  an  outlaw  in  Ohio." 

The  State  of  Georgia  had  a  wholesome  law,  passed  in 
1816,  providing  that  if  any  bank  should  refuse  to  pay  its 
notes  in  specie  on  demand  it  should  pay  interest  at  the  rate 
of  25  per  cent  per  annum  on  the  default. 

When  the  Bank  of  the  United  States  established  its 
branch  in  Savannah  it  received  the  notes  of  the  Georgia 
banks  at  par.  In  the  year  1820  it  began  to  make  demands 
on  them  for  the  redemption  of  such  notes.  They  refused  to 
pay  although  they  pretended  to  be  solvent.  They  refused 
also  to  allow  interest  on  the  unliquidated  claim.  They  pre- 
vailed on  the  Legislature  in  May,  1821,  to  repeal  the  25  per 
cent  penalty  on  the  ground  that  it  was  only 
"in  the  interest  of  brokers  and  lottery  ticket 
sellers."  This  left  the  banks  liable  to  8  per 
cent  interest  on  the  default,  that  being  the  legal  rate  on  all 
deferred  claims.  This  did  not  suit  them.  So  they  pro- 
cured the  appointment  of  a  joint  committee  of  the  Legis- 
lature to  report  on  the  incendiary  action  of  the  United 
States  Bank.  This  committee  reported  in  November,  1821, 
that  the  Bank  of  the  United  States,  having  been  intruded 
upon  the  State  of  Georgia  without  her  consent,  was  an  inter- 
ference with  her  sovereignty  as  an  independent  State.  They 
said  that  by  accumulating  notes  of  State  banks  it  had  de- 
prived the  State  of  a  circulating  medium,  and  by  frequent 
and  repeated  demands  of  large  sums  in  specie  had  com- 
pelled them  to  curtail  discounts  and  "to  deprive  the  State 
and  the  individual  stockholders  of  their  usual  and  expected 
dividends."  They  recommended  a  law  establishing  a  rate 


286  REPRESENTATIVE  MONEY. 

of  interest  between  the  United  States  Bank  and  the  State 
banks  so  low  as  to  prevent  all  of  said  banks  from  being 
benefited  by  accumulating  each  other's  notes ;  that  while 
the  State  banks  should  continue  to  pay  individuals  in  specie 
"they  shall  refuse,  whenever  they  think  it  prudent  to  do  so, 
to  pay  specie  for  their  bills  to  the  United  States  Bank  or  its 
officers  or  agents,  upon  giving  60  days'  previous  notice  of 
such  intention." 

In  order  to  make  a  complete  job  of  it,  the  Legislature 
decided  to  fix  the  rate  of  interest  at  zero.  On  the  24th  of 
December,  1821,  it  passed  an  act  virtually  authorizing  sol- 
vent debtors  to  refuse  payment  to  one  creditor  but  not  to 
others,  thus  : 

"SECTION  4.  That  if  the  Bank  of  the  United  States,  or 
either  of  the  branches  of  said  bank,  shall,  after  the  first  day 
of  January  next,  collect,  acquire,  purchase  or  receive  on  de- 
posit the  bills  or  notes  of  either  of  the  banks 
A  Queer  Law.  incorporated  by  the  State  of  Georgia,  which 
have  been  or  may  hereafter  be  issued  by  the 
banks  aforesaid,  and  shall  demand  specie  for  the  same,  the 
bills  or  notes,  so  collected  by  the  Bank  of  the  United  States, 
or  either  of  its  branches,  shall  not  bear  interest  on  account 
of  any  refusal  by  either  of  the  banks  incorporated  in  this 
State  to  redeem  the  same  in  specie. 

"SECTION  5.  Nothing  in  this  act  shall  be  so  construed  as 
to  deprive  individuals  who  may  demand  specie  for  them- 
selves for  the  notes  or  bills  of  either  of  the  banks  incor- 
porated by  the  General  Assembly  of  this  State,  from  the 
same  privileges  and  advantages  in  obtaining  specie  or  inter- 
est as  now  exist  by  the  Laws  of  this  State." 

'Gouge  says  that  after  this  law  was  passed  the  Bank  of  the 
United  States  sold  its  Georgia  bank  notes  at  auction  on  the 
Savannah  Exchange.  The  banks  now  felt  emboldened  to 
make  difficulties  about  paying  private  citizens.  The  Planters' 


THE  BANK  WAR.  287 

Bank  of  Georgia  redeemed  its  notes  in  copper  cents,  count- 
ing them  at  the  rate  of  sixty  dollars  per  day,  although  these 
coins  were  not  legal  tender.  The  act  quoted  above  was  re- 
pealed in  1824. 


CHAPTER   VI. 
THE  BANK  WAR. 

THE  Bank  was  in  its  halcyon  days  when  President  Jack- 
son sent  his  first  message  to  Congress  with  the  hostile  para- 
graph already  quoted.  The  inter-state  war 
against  it;  had  ceased.  Whatever  may  have 
been  its  internal  condition  —  and  it  was  an 
unpleasant  circumstance  that  the  parent  bank  could  not  keep 
an  effective  control  over  the  branches,  some  of  which  were 
engaged  in  "kiting"  operations  of  a  very  reprehensible 
type  —  its  external  appearance  was  very  imposing.  It  pos- 
sessed the  confidence  of  Congress,  of  the  country  and  of  the 
civilized  world  in  the  highest  degree.  Its  average  loans 
and  discounts  were  $40,000,000  and  its  annual  profits 
$3,000,000.  It  had  five  hundred  employees  of  high  standing 
id  social  position.  Of  its  President,  Nicholas  Biddle, 
[ngersoll  says  :  l 

"No  American  had  such  European  repute.  Jackson's 
/as  the  only  one  comparable,  and  that  far  inferior  to  it. 
Mattered,  caressed,  extolled,  idolized  in  America,  Biddle 
is  praised  and  respected  in  Europe  as  the  most  sagacious 
ind  successful  banker  in  the  world.  Governors,  senators, 
legislators,  judges,  clergymen,  ladies  thronged 
[>ias  Biddle.  his  bank  parlor  and  by  fulsome  adulation  en- 
treated his  favors.  His  town  house  and  his 
mntry  house  were  the  seats  of  elegant  hospitality  in  which 
ie  shone  with  the  blandishments  of  a  polished  gentleman, 

1  Ingersoll,  ii,  285. 


288  REPRESENTATIVE  MONEY. 

amiable,  witty,  liberal,  never  harsh  or  offensive  to  antagonists, 
but  spoiled  by  sycophants  of  the  highest  rank.  Chambers 
of  Commerce,  boards  of  brokers  and  other  representatives 
of  trading  associations,  cities,  corporations  and  sovereign 
states  courted  his  support  and  solicited  his  favors." 

The  common  opinion  concerning  the  bank  at  that  time 
was  the  same  that  is  now  held  of  the  great  central  banks  of 
England,  France,  and  Germany,  and  this  opinion  was  prob- 
ably shared  by  Jackson  himself  (so  far  as  he  had  ever  given 
any  thought  to  it),  until  he  came  to  Washington  as  Presi- 
dent. The  causes  of  his  outbreak  must  be  sought  else- 
where. Among  the  earliest  indications  of  what  was  coming 
are  the  following  letters  from  a  pair  of  unsavory  politicians 
who  had  come  to  Washington  as  a  part  of  the  driftwood  on 
the  tide  of  1828  : 

"WASHINGTON,  July  17,  1829. 

"GENTLEMEN  :  —  Agreeably  to  my  suggestion  when  I  saw 
you  in  Philadelphia,  I  now  send  you  two  petitions  to  the 
president  and  directors  of   the  Bank  of  the  United  States 
asking  for  a  change  in  the  board  of  directors  at  the  branch 
in  Portsmouth,  N.  H.,  together  with  a  letter  from  John  S. 
Jenness,  Esq.,  a  respectable  merchant  of  that  town,  in  favor 
of  the  same  object,  and  requesting' that  you 
will  present  them  to  the  president  of  the  Bank 
in  your  city.     One  petition  is  subscribed  by 
about   60   of   the   most    respectable    members    of    the  New 
Hampshire  legislature,  naming  suitable  persons  for  directors 
at  Portsmouth,  and  the  other  petition  is  subscribed  by  most 
of  the  business  men,  merchants  at  Portsmouth,  without  dis- 
tinction of  party. 

"  Having  recently  spent  several  weeks  in  New  Hampshire, 
I  am  able  to  say  from  my  own  knowledge  that  the  sentiment 
of  dissatisfaction  on  account  of  the  recent  management  of 
the  branch  at  Portsmouth  by  Mr.  Mason  is  general ;  that  his 


THE  BANK  WAR.  289 

conduct  has  been  partial  and  oppressive  and  calculated  not 
less  to  injure  the  institution  than  to  disgust  and  disaffect 
the  principal  business  men,  and  that  no  measure  short  of  his 
removal  will  tend  to  reconcile  the  people  of  New  Hamp- 
shire to  the  bank. 

"A  letter  from  a  gentleman  of  Portsmouth  now  before  me 
says  :  'This  man  (Mr.  Mason)  controls  the  whole  concerns 
of  the  bank ;  it  is  like  having  but  one  director ;  he  is  unac- 
commodating to  pensioners ;  has  put  them  to  unnecessary 
trouble  and  expense  ;  he  has  ordered  large  discounts  to  be 
made  to  Mr.  Lawrence,  his  brother-in-law  at  Boston ;  at  the 
same  time  he  has  refused  to  accommodate  our  merchants 
with  two  or  three  thousand  dollars ;  and  this  too,  on  the 
very  best  of  paper.' 

"The  friends  of  Gen.  Jackson  in  New  Hampshire  have 
had  but  too  much  reason  to  complain  of  the  management  of 
the  branch  at  Portsmouth.  All  they  now  ask  is  that  this  in- 
stitution in  that  State  may  not  continue  to  be  an  engine  of 
political  oppression  by  any  party.  The  board  has,  I  be- 
lieve, invariably  and  exclusively  consisted  of  individuals 
opposed  to  the  general  government.  Of  the  ten  persons 
named  in  the  petition  for  directors,  six  are  friends  of  the 
last  and  four  friends  of  the  present  administration.  They 
are,  however,  alike  gentlemen  of  respectability,  who  have  no 
sinister  objects  to  be  promoted,  understanding  well  the 
responsibility  and  wants  of  business  men.  With  such  a  di- 
rection, I  do  not  doubt  the  branch  at  Portsmouth  will  be  se- 
cure and  prosperous  and  satisfy  all.  The  advantage  of  hav- 
ing two  respectable  men  in  the  board  (one  of  whom  is  State 
Treasurer)  out  of  Portsmouth  must  be  obvious. 

"I  am,  gentlemen,  with  great  respect  your  friend  and 
most  obedient, 

"  ISAAC  HILL,  Second  Comptroller  U.  S.  Treasury. 
"To  J.  N.  BARKER  and  JOHN  PEMBERTON,  Esqs." 


290  REPRESENTATIVE  MONEY. 

"FOURTH  AUDITOR'S  OFFICE,  2d  Nov.,  1829. 
"DEAR  SIR:  —  In  the  summer  of  1828  I  was  informed  by 
Mr.  -  — ,  of  Frankfort,  that  on  the  Sunday  preceding  the 
election  of  1825  it  was  determined  by  two  directors  of  the 
United  States  branch  bank  at  Louisville,  where  he  then  re- 
sided, to  appropriate  $250  of  a  certain  contingent  fund  or 
secret  service  money,  belonging  to  the  bank, 
^t°esrKendall's  of  which  fund  they  had  the  control,  to  aid  the 
party  called  the  old  court  party  in  carrying 
the  elections  in  Jefferson  county.  Mr.  -  —  further  stated 
that  $100  of  the  money  was  put  into  the  hands  of  himself 
and  another  gentleman  on  that  day,  that  they  went  to  Ship- 
pingsport  and  opened  grogshops  with  it,  and  hired  hacks  to 
carry  up  voters  ;  that  the  balance  was  put  into  the  hands  of 
others  for  like  purposes  in  Louisville ;  that  they  did  employ 
with  that  money  all  the  hacks  in  the  place,  and  to  use  his 
own  expression,  'did  a  main  business  on  Sunday.' 

"Not  being   authorized  to  use  this  information  on   Mr. 
— 's  authority,  I  requested  Mr.  Gilly  Cuddy  to  prove  it 
if  possible  through  other  channels,  and  these  are  facts  to 
which  he  alludes.     Very  respectfully, 

"AMOS  KENDALL. 
"S.  D.  INGHAM,  Sec.  of  the  Treasury." 

Hill  had  been  the  editor  of  a  rancorous  party  newspaper 
of  the  Jackson  stripe  in  New  Hampshire  and  latterly  presi- 
dent of  a  small  bank  in  Concord  for  which  he  wished  to  se- 
cure the  pension  deposits  which  were  placed  by  law  in  the 
United  States  branch  bank  at  Portsmouth.  He  now  held 
the  office  of  second  comptroller  of  the  Treasury  by  Jackson's 
appointment,  but  had  not  been  confirmed,  and  was  eventually 
rejected  by  the  Senate.  Kendall  had  also  been  the  editor 
of  a  party  newspaper  in  Kentucky  and  was  now  fourth 
auditor  of  the  Treasury.  These  were  two  of  the  four  men 


THE  BA.VA'  WAR.  291 

who  constituted  Jackson's  "Kitchen  Cabinet,"  or  Cabinet 
improper,  as  Webster  called  it,  in  distinction  from  the  Cabi- 
net proper,  and  there  is  every  reason  to  suppose  that  these 
two  men  were  "the  large  portion  of  our  fellow-citizens"  who 
questioned  the  expediency  of  the  law  creating  the  bank. 

Jeremiah  Mason,  against  whom  Hill's  letter  was  directed, 
was  one  of  the  three  great  lawyers  of  New  England,  standing 
on  the  same  plane  with  Daniel  Webster  and  John  Quincy 
Adams.  He  had  been. a  candidate  for  the  Senate  in  1824 
but  had  been  defeated  by  an  intrigue  which  had  resulted  in 
the  election  of  Levi  Woodbury.  The  latter  was  an  intimate 
friend  of  Isaac  Hill.  Whether  Hill  or  Woodbury  was  the 
prime  mover  of  the  attack  on  the  bank  in  this 

Political  In-         quarter,  is  immaterial.     It  is  certain  that  the 

trigue  in  New  ...      .    . 

Hampshire.  movement  was   a   political   intrigue.     A   few 

days  before  Hill  wrote  the  letter  quoted  above, 
Woodbury  had  addressed  a  note  to  Mr.  Ingham,  the  Secre- 
tary of  the  Treasury,  making  complaints  against  Mason's 
management  of  the  Portsmouth  branch  similar  to  those 
made  by  Hill.  Mr.  Ingham  forwarded  it  to  Nicholas  Biddle, 
the  president  of  the  bank,  with  some  comments  of  his  own. 
Biddle  replied  that  the  Portsmouth  branch  had  been  badly 
managed  before  Mason  took  charge  of  it  and  that  the  bank 
had  with  difficulty  persuaded  him  to  accept  the  position. 
Biddle  refuted  all  of  Woodbury's  specific  charges,  so  far  as 
they  could  be  answered  without  an  "investigation  on  the  spot, 
which  he  promised  to  make  in  due  time.  He  added  that 
the  bank  had  no  connection  with  politics  and  desired  to 
have  none.  A  little  later  he  went  to  Portsmouth,  investi- 
gated the  charges,  and  wrote  a  more  complete  answer  to 
them. 

The  correspondence  leaves  no  doubt  that  the  charges 
against  Mason's  management  of  the  branch  were  with- 
out foundation,  having  been  trumped  up  by  his  political 


292  REPRESENTATIVE  MONEY. 

enemies.     Biddle  felt  so  sure  of  his  position  that  he  was  not 
satisfied  with  vindicating  Mason,  but  went  on  to  give  some 

instruction  to  Ingham  touching  the  mutual  re- 
Biddle's  Mistake,  lations  of  the  bank  and  the  government.  This 

was  a  gross  blunder.  Ingham  retorted  that 
the  Secretary  of  the  Treasury  had  the  power  to  remove  the 
government's  deposits  from  the  bank  —  a  fact  that  Biddle, 
in  his  literary  effusiveness  and  abandon,  had  overlooked. 
Biddle  was  worsted  in  the  encounter,  but  his  mistake  of 
tactics  was  not  necessarily  fatal. 

Jackson  was  easily  pursuaded  by  his  Kitchen  Cabinet  that 
the  bank  was  his  enemy  and  therefore  the  enemy  of  the  re- 
public and  of  the  human  race,  yet  so  firmly  was  it  intrenched 
in  the  business  of  the  country  and  in  the  confidence  of  the 
people  that  his  political  friends  did  not  at  first  take  him 

seriously  when  he  spoke  against  it.  That 
proves6 thf Bank  Portion  of  his  message  of  1829  which  alluded 

to  it  was  referred  to  a  committee,  and  a  report 
was  made  by  Mr.  McDuffie,  of  South  Carolina,  who  contro- 
verted the  message  mildly  but  distinctly  at  all  points,  and 
the  report  was  sustained  by  a  decisive  majority  in  a  House 
composed  largely  of  Jackson  men.  Similar  proceedings 
were  had  in  the  Senate. 

In  the  message  of  1830,  the  President  again  alluded  to 
the  subject,  but  a  test  vote  in  the  House  showed  that  the 
bank  was  even  stronger  than  before.  In  1831  the  message 

took  a  milder  tone,  saying  that  the  President 

had  felt  U  his  duty  franklY  to  disclose  his 
opinions  on  the  subject  in  former  messages, 
"Having  thus  conscientiously  discharged  a  constitutional 
duty,"  he  continued,  "I  deem  it  proper  on  this  occasion, 
without  a  more  particular  reference  to  the  views  on  the  sub- 
ject then  expressed,  to  leave  it  for  the  present  to  the  inves- 
tigation of  an  enlightened  people  and  their  representatives." 


THE  BANK  WAR.  293 

If  the  bank  had  had  only  its  political  enemies  to  deal 
with  it  would  probably  have  come  off  unscathed.  Secretary 
Ingham  was  not  opposed  to  the  bank  although  he  had  had 
a  tilt  with  Biddle.  The  latter  had  successfully  resisted  the 
attempt  to  draw  the  bank  into  politics.  Ingham  had  retired 
from  the  Treasury  and  was  succeeded  by  Louis  McLane,  a 
warm  friend  of  the  bank.  Four  of  the  six  members  of  the 
cabinet  were  friendly  to  it,  and  Jackson  himself  now  seemed 
disposed  to  cease  his  war  on  it.  "To  the  last,"  says  Inger- 
soll,  "  Mr.  Biddle  was  strongly  advised  not  to  press  the  re- 
charter  when  it  was  done.  Mr.  Livingston, 
Secretary  of  State,  Mr.  McLane,  Secretary  of 
the  Treasury,  and  I  believe  General  Cass, 
Secretary  of  War,  as  well  as  Mr.  Barry,  Postmaster  General, 
General  Smith,  John  Forsyth,  Mr.  Wilkins,  Mr.  Dallas,  the 
Pennsylvania  senators,  nearly  all  that  portion  of  the  Re- 
publican party  which  sustained  the  bank  counselled  delay. 
Let  the  President  have  time  and  his  friends  opportunity  for 
reasoning  with  him.  Do  not  force,  do  not  hurry  him.  Wait 
the  event  of  his  election.  Let  him  be  the  author  instead  of 
the  destroyer  of  a  bank.  Edward  Livingston  was  constant 
in  belief  and  assurances  that  if  conciliated  and  not  con- 
strained the  rugged  chieftain  would  yield  on  fair  and  reason- 
able terms.  The  Attorney  General,  Mr.  Taney,  was  the 
only  open  cabinet  opponent  of  the  bank."  1  Even  Levi 
Woodbury  was  silenced. 

Henry  Clay  was  nominated  for  President  in  opposition  to 
Jackson  at  Baltimore,  in  December,  1831,  by  the  "National 
Republicans"  (afterwards  called  Whigs).  He  had  been  out 
of  public  life  two  years,  having  retired  at  the  end  of  the 
Adams  administration,  of  which  he  was  a  member.  During 
this  interval  he  had  been  employed  professionally  by  the 
bank,  and  thus  was  brought  into  agreeable  relations  with  it, 

1  Ingersoll,  ii,  268. 


294  REPRESENTATIVE  MONEY. 

but  was  not  then  in  any  special  sense  its  champion.  He 
was  elected  Senator  from  Kentucky  in  1831.  He  was  the 
dictator  of  his  own  political  party  and  he  de- 
Henry  Clay  and  termined  to  make  the  recharter  of  the'  bank  a 
the  Friends  of 
the  Bank.  party  issue.  The  legislature  of  Pennsylvania, 

a  strong  Jackson  State,  had  passed  resolutions, 
by  a  nearly  unanimous  vote,  in  favor  of  rechartering  the 
bank.  This  led  Clay  to  believe  that  if  the  bank  would  take 
the  aggressive  it  would  be  easy  to  turn  that  State  and  the 
business  interests  of  the  country  generally  against  Jackson 
in  the  coming  campaign.  He  even  thought  that  Jackson 
was  trying  to  avoid  the  bank  issue  until  after  the  election. 
"The  executive,"  he  said  in  a  letter  dated  December  25, 
1831,  "is  playing  a  deep  game  to  avoid,  at  this  session,  the 
responsibility  of  a  decision  on  the  bank  question." 

Entertaining  these  views  and  having  the  power  to  shape 
the  issues  of  the  campaign  on  his  own  side  he  caused  a 
plank  to  be  put  in  the  Baltimore  platform  de- 
form* of°i83*lat~    claring  tnat  tne  bank  was  a  great,  beneficent 
and  necessary  institution,  and  that  the  Presi- 
dent was  "fully  and  three  times  over  pledged  to  the  people 
to  negative  any  bill  that  might  be  passed  for  rechartering 
the  bank."     Even  after  this  provocation  Jackson  nominated 
Biddle  as  one  of  the  government  directors  of  the  bank. 

The  bank  had  been,  up  to  this  time,  a  non-resistant,  and 
that  was  the  reason  why  Jackson's  animosity  had  cooled. 
It  was  still  reluctant  to  enter  the  political  arena.  Biddle 
hesitated,  but  was  finally  persuaded  by  the  argument  that 
the  bank  must  put  itself  in  the  hands  of  its  friends  rather 
than  of  its  enemies.  Accordingly  he  wrote  a 
memorial  asking  for  a  renewal  of  the  charter, 
which  Mr.  Dallas  presented  to  the  Senate 
on  the  Qth  of  January,  1832,  in  a  most  infelicitous  and 
damaging  speech.  Dallas  claimed  the  privilege  of  presenting 


THE  BANK  WAR.  295 

it  because  the  bank  had  its  domicile  in  his  State,  but  he 
was  afraid  of  stirring  up  a  quarrel  with  his  chief.  Instead 
of  assuming,  as  he  might  easily  have  done,  from  the  tone  of 
the  last  message,  that  the  President  had  decided  to  leave  the 
whole  subject  to  the  decision  of  an  enlightened  people  and 
their  representatives,  he  said  that  he  had  tried  to  ^dissuade 
the  friends  of  the  bank  from  seeking  a  renewal  of  the  charter 
on  the  eve  of  a  presidential  election,  since  it  might  thus  be 
"drawn  into  real  or  imagined  conflict  with  some  higher, 
some  more  favorite,  some  more  immediate  wish  or  purpose 
of  the  American  people."  Still,  the  judgment  of  the  parties 
interested  was  probably  better  than  his  own  and  he  hoped 
that  the  great  interests  at  stake  would  not  suffer,  however 
dangerously  timed  the  introduction  of  the  memorial  might  be. 
No  better  form  of  words  could  have  been  devised  for  trum- 
peting a  clash  of  arms  between  the  bank  and  the  President. 
In  order  that  no  aggravating  circumstance  might  be  omitted 
the  president  of  the  bank  opened  headquarters  at  Gadsby's 
Hotel,  or  as  Ingersoll  says,  "the  bank  standard  was  hoisted 
by  Nicholas  Biddle  in  person."  Senators  and  representa- 
tives, lobbyists,  bank  debtors,  borrowers,  sycophants  flocked 
thither.  Sumptuous  entertainments  were  given 

anc*  t^ie  *^an  °^  camPaign  marked  out.  Al- 
though nothing  could  have  been  better  calcu- 
lated to  stir  up  the  fighting  element  in  Jackson,  which  sel- 
dom needed  stirring,  very  strict  attention  was  paid  to  his 
supposed  wishes  as  to  the  details  of  the  bill.  All  the 
amendments  that  he  had  ever  suggested,  which  were  con- 
sistent with  the  life  of  the  bank/  were  adopted  ;  among  them 
was  one  which  prohibited  the  issue  of  notes  smaller  than  $20. 
And  now  the  other  side  bestirred  themselves.  They  too 
prepared  a  plan.  They  saw  that  the  bank  issue  was  to  be 
the  leading  one  in  the  campaign.  Their  plan  was  the  famil- 
iar one  :  "Throw  plenty  of  mud  —  some  of  it  will  stick." 


296  REPRESENTATIVE  MONEY. 

The  principal  purveyor  of  mud  was  one  Whitney,  an  insol- 
vent merchant  of  Philadelphia,  who  had  been  a  director  of 
the   bank    and   who    hated    Biddle.     Senator 

The  Anti-Bank     Benton  put  together  all  the  bad  things  that 

Flan  of  Cam-  .  . 

paign.  Whitney  furnished  and  as  many  more  as  he 

could  collect  or  imagine,  placed  them  in  the 
hands  of  representative  Clayton,  of  Georgia,  and  prompted 
him  to  make  specific  charges  of  rottenness  and  mismanage- 
ment against  the  bank  and  to  demand  an  investigation  by 
the  House.  This  was  done.  The  investigation  was  ordered 
and  a  committee  appointed  consisting  of  seven  members, 
Mr.  Clayton,  chairman,  Richard  M.Johnson,  Francis  Thomas, 
C.  C.  Cambreling,  George  McDuffie,  John  Quincy  Adams, 
and  Mr.  Watmough,  four  anti-bank  men  to  three  of  the 
other  side.  The  investigation  was  conducted  in  Philadel- 
phia and  the  principal  witness  was  Whitney,  who  perjured 
himself  and  was  detected,  exposed  and  covered  with  obloquy. 
Whitney  had  been  a  favorite  at  the  White  House  before  this. 
He  was  now  a  persecuted  man  in  the  eyes  of  the  President, 
and  became  a  member  of  the  Kitchen  Cabinet  and  Jackson's 
agent  of  communication  with  his  own  Secretary  of  the 
Treasury,  W.  J.  Duane,  when  the  latter  succeeded  McLane 
in  that  office. 

Three  reports  were  made,  one  by  the  majority,  one  by  the 
minority  (McDuffie  and  Watmough)  and  one  by  Mr.  Adams. 
The  reports  and  testimony  made  a  volume  of  nearly  600 
pages.  A  careful  analysis  of  this  document  may  be  found 
in  Sumner's  Life  of  Jackson.  It  may  suffice  to  say  here 
that  no  charge  against  the  bank  that  was  worth  considering 
was  sustained. 

On  the  Qth  of  June  the  bill  rechartering  the  bank  passed 
its  third  reading  in  the  Senate  by  25  to  20. 

Now  the  friends  of  the  bank,  who  were  also  friends  of  the 
President,  made  one  more  effort  to  prevent  a  conflict.  They 


THE  BANK  WAR.  297 

entreated  Mr.  Biddle  to  pause  and  let  the  bill  rest  until  after 
the  election.  If  he  had  had  his  choice  he  might  have  taken 
this  advice,  but  he  was  "threatened  with  opposition  from 
the  party,  then  his  chief  reliance,  unless  he  went  on."  * 
They  said,  too,  that  Jackson  would  not  dare  to  veto  the  bill, 
and  if  he  did  he  would  be  hurled  from  power  by  an  indig- 
nant people.  So  they  went  on  merrily  and 
The  Bill  passed  passed  the  bill  in  both  houses  and  sent  it  to 
the  President  on  the  6th  of  July.  One  more 
challenge  was  given  to  him.  The  House  on  the  28th  of 
June  had  voted  to  adjourn  on  the  gth  of  July.  The  resolu- 
tion was  not  acted  on  by  the  Senate  until  the  9th.  Then 
Mr.  Webster  said  that  there  was  an  important  measure  under 
consideration  by  the  Executive,  which  he  was  not  compelled 
to  return  in  less  than  ten  days.  The  House  resolution  was 
then  amended  by  inserting  the  i6th.  This  was  equivalent 
to  saying  to  the  President :  "  You  shall  not  dodge.  You 
must  sign  the  bill  or  veto  it.  You  shall  not  kill  it  by  a 
'pocket  veto.'  " 

The  next  day,  July  10,  the  veto  came.  It  was  not  a  very 
sound  document,  but  a  very  sounding  one.  It  was  perfectly 
adapted  to  its  purpose,  that  of  winning  votes.  It  dealt  with 
the  bank  as  a  monopoly,  ringing  all  possible  changes  on  that 
term,  and  in  the  most  skillful  manner.  It  is  supposed  that 
Amos  Kendall  wrote  it.  Jackson  had  no  pride  of  author- 
ship, yet  he  was  always  well  served  in  his  state  papers.  He 
was  as  far  as  possible  from  being  a  demagogue,  yet  this  was 
a  most  demagogical  appeal.  The  friends  of  the  bank  were 
in  high  glee  when  they  saw  it.  Biddle  wrote 
And  vetoed.  to  Clay:  "I  have  always  deplored  making  the 
bank  a  party  question,  but  since  the  President 
will  have  it  so,  he  must  pay  the  penalty  of  his  own  rashness. 
As  to  the  veto  message,  I  am  delighted,  with  it.  It  has  all 

1  Ingersoll,  ii,  269. 


298  REPRESENTATIVE  MONEY. 

the  fury  of  a  chained  panther  biting  the  bars  of  his  cage.  It 
is  really  a  manifesto  of  anarchy,  such  as  Marat  or  Robes- 
pierre might  have  issued  to  the  mob  of  the  Faubourg  St. 
Antoine  ;  and  my  hope  is  that  it  will  contribute  to  relieve 
the  country  from  the  dominion  of  these  miserable  people. 
You  are  destined  to  be  the  instrument  of  that  deliverance, 
and  at  no  period  of  your  life  has  the  country  ever  had  a 
deeper  stake  in  you.  I  wish  you  success  most  cordially,  be- 
cause I  believe  the  institutions  of  the  Union  are  involved 
in  it."  l 

This  was  not  the  first  time  that  Biddle's  literary  talents 
had  betrayed  him.     Four  months  later  he  and  Mr.  Clay  and 

the  bank  went  down  with  a  grand  crash,  Jack- 
Grand  Crash,  son  being  reflected  by  219  electoral  votes,  to 

67  for  all  others.  Mr.  Clay  received  49.  No- 
body at  the  present  day  considers  Biddle  a  good  banker. 
Few  persons  regret  the  Bank  of  the  United  States.  But  if 
its  taking  off  was  a  national  misfortune,  Mr.  Clay  and  his 
party  were  as  much  to  blame  as  General  Jackson  and  his 
party.  They  made  the  bank  a  tail  to  their  kite  at  a  time 
when  defeat  to  them  meant  destruction  to  it.  The  attempt 
to  pass  the  bill  over  the  veto  failed  in  the  Senate,  22  to  19. 


CHAPTER  VII. 
END  OF  THE  GREAT   BANK. 

ON  the  24th  of  March,  1832,  Mr.  Asbury  Dickins,  acting 
secretary  of  the  Treasury,  notified  Mr.  Biddle  confidentially 
that  the  government  desired  to  apply  a  portion  of  its  money 
deposited  in  the  bank  to  the  payment  of  the  outstanding  3 
per  cents  —  a  remnant  of  the  revolutionary  debt  funded  by 
Hamilton.  The  public  deposits  now  amounted  to  $i  2,000,000, 
1  Parton's  Jackson,  iii,  411. 


END  OF  THE  GREA  T  BANK.  299 

and  the  debt  to  be  paid  off  was  $9,000,000.  Secretary  Mc- 
Lane  gave  Mr.  Biddle  formal  notice  of  this  purpose  on  the 
25th  of  July  and  Biddle  replied  that  the  bank 
t Per* Cents16  would  take  the  necessary  steps  to  get  posses- 
sion of  the  bulk  of  the  3  per  cents  and  would 
act  in  accordance  with  the  wishes  of  the  government.  In 
the  meantime  General  Cadwalader,  a  director  of  the  bank, 
had  been  sent  to  London  to  make  a  private  arrangement 
with  the  Barings  for  postponing  the  payment  of  $5,000,000 
of  the  debt.  A  contract  was  made  with  that  house  to  extend 
as  many  of  the  3  per  cents  as  possible  and  to  buy  up  the 
rest.  This  was  a  violation  of  the  bank's  charter,  which  pro- 
hibited it  from  purchasing  any  public  stocks. 
^  was  eclua^y  a  violation  of  the  understanding 
with  the  Treasury,  since,  under  the  Baring 
contract,  the  3  per  cents  would  be  kept  alive,  the  bank  pay- 
ing the  interest  and  being  responsible  eventually  for  the 
principal.  Money  was  worth  7  per  cent  to  the  bank.  By 
this  scheme  it  would  obtain  the  use  of  the  government's 
money  at  3  per  cent  or  a  little  more. 

It  was  Biddle's  intention  to  keep  the  matter  secret,  but  the 
Baring  circular  got  into  the  newspapers  in  October.  Biddle 
immediately  disavowed  Cadwalader's  contract  with  the  Bar- 
ings, in  so  far  as  related  to  the  buying  of  the 'debt,  and  pro- 
posed a  different  arrangement.  Secretary  McLane  called 
on  Biddle  for  explanations  and  the  latter  replied  that  he  had 
taken  this  step  for  the  public  good.  The  cholera  had  in- 
vaded the  country  in  the  summer  of  1832,  causing  serious 
interruptions  to  business  and  threatening,  he  said,  "if  it 
continued,  to  press  with  peculiar  force  on  the 
And  Exposure,  public  revenue,  more  especially  as  the  demand 
on  account  of  the  foreign  holders  of  3  per 
cents  on  the  first  of  October,  at  New  York  and  Philadelphia 
alone,  would  have  exceeded  five  millions  of  dollars."  This 


300  REPRESENTATIVE  MONEY. 

meant  that  the  bank  would  be  obliged  to  curtail  its  dis- 
counts by  this  sum,  in  order  to  pay  the  foreign  debt.  So 
the  bank  had  interposed  itself  as  a  Providence  between  the 
people  and  the  government  because  the  cholera  was  raging, 
and  had  done  so  in  a  clandestine  manner. 

Jackson  was  fully  justified  in  considering  this  a  subter- 
fuge. Another  occurrence  a  few  months  later  exasperated 
him  still  more.  In  February,  1833,  Secretary  McLane  drew 
on  the  French  government  for  $912,000, 
being  the  first  installment  of  the  spoliation 
claims  which  had  been  settled  by  treaty.  The 
draft  was  drawn  prematurely,  for  although  the  treaty  had 
been  ratified  the  payment  could  not  be  made  until  the 
French  Chamber  had  appropriated  the  money.  The  draft 
had  been  purchased  by  the  bank  and  the  proceeds  credited 
to  the  government,  but  not  drawn  out.  When  it  was  pre- 
sented to  the  French  minister  of  finance  payment  was  re- 
fused. Thereupon  Hottinguer  &  Co.,  of  Paris,  paid  it  and 
drew  on  the  Bank  of  the  United  States  for  the  amount.  The 
bank  claimed  restitution  of  the  money,  together  with  15  per 
cent  damages  under  a  law  of  the  District  of  Columbia  relat- 
ing to  protested  paper.  The  Secretary  paid  the  principal 
and  offered  to  pay  the  actual  cost,  but  refused  to  pay  damages. 
The  bank  deducted  the  amount  of  the  claim  from  the  gov- 
ernment's dividends  as  a  shareholder.  Then  the  govern- 
ment sued  the  bank. 

This  was  a  most  inopportune  and  ill-advised  transaction. 
The  claim  for  damages  was  destitute  of  moral  foundation, 
since  the  money  which  was  paid  for  the  draft  was  all  the 
time  in  the  bank.  It  turned  out  to  be  equally  destitute  of 
legal  foundation,  since  a  bill  of  exchange  drawn  by  one 
government  on  another  is  not  subject  to  protest  and  conse- 
quential damages.  So  the  Supreme  Court1  decided  in  this 
case,  several  years  after  the  bank  had  ceased  to  exist. 


END  OF  THE  GREA  T  BANK.  301 

In  the  spring  of  1833  Mr.  McLane  was  transferred  to  the 
State  Department  and  Wm.  J.  Duane  was  appointed  Secre- 
tary of  the  Treasury.  The  President  had  determined  to  re- 
move the  public  deposits  from  the  bank.  The  affair  of  the 
3  per  cents  had  led  him  to  believe  that  the  bank  was  in  a 
tottering  condition.  This  was  a  mistake.  It  was  really 
very  strong,  as  a  new  investigation  made  by  a  Treasury 
agent  showed,  having  a  surplus  of  eight  millions.  All  that 
its  enemies  could  say  was  that  its  assets  were  more  or  less 

unsound,  but  this  they  could  not  prove.     But 
Anger  of  Jack-      jackson  had  made  up  his  mind  that  the  bank 

was  full  of  dead  men's  bones,  and  no  evidence 
could  shake  him.  To  draw  out  the  deposits  and  to  get  rid 
of  the  government's  shares  in  the  bank  was  now  his  main 
purpose,  but  he  encountered  unexpected  difficulties  in  both 
directions.  The  sanction  of  Congress  was  necessary  to  a 
sale  of  the  shares  and  Congress  refused  to  give  it.  The 
sanction  of  Congress  was  not  legally  necessary  to  a  removal 
of  the  deposits,  but  most  people  considered  it  morally  so. 
Besides,  there  was  no  other  place  to  keep  the  money.  The 
Independent  Treasury  did  not  exist.  The  government  had 
neither  vaults,  nor  custodians  of  its  funds,  nor  means  of 
transferring  them  from  one  place  to  another.  The  bank  did 
all  these  things  and  did  them  well.  Consequently  when 
Jackson  approached  McLane  in  his  familiar  way,  through  a 
member  of  the  Kitchen  Cabinet  (Kendall),  with  a  sugges- 
tion that  the  deposits  be  removed,  he  met  re- 
Proposes  to  re-  sistance,  and  McLane  was  sustained  by  two- 
posits,  thirds  of  the  regular  Cabinet.  The  House 
voted  March  2,  1833,  by  109  to  46  that  the 
deposits  might  be  safely  continued  in  the  bank.  This  vote 
only  confirmed  Jackson  in  his  purpose  to  remove  them.  He 
now  conceived  that  unless  the  deposits  were  removed  the 
bank  would  bribe  Congress  to  pass  a  new  charter  by  a  two- 


302  REPRESENTATIVE  MONEY. 

thirds  vote,  and  when  this  idea  became  fixed  in  his  mind  he 
began  to  distrust  Congress  as  though  the  bribery  were  al- 
ready done.  As  the  bank  had  $35,000,000  of  capital  and 
$8,000,000  of  surplus  there  would  have  been  very  little  need 
of  the  government's  deposits  to  constitute  a  fund  for  bribery, 
if  bribery  were  intended,  but  he  did  not  think  of  this.  In 
his  mind  there  were  few  good  men  left,  and  the  circle  was 
daily  narrowing.  It  was  a  relief  to  him,  as  well  as  to 
McLane,  when  room  was  found  for  the  latter  in  the  State 
Department,  and  a  vacancy  was  thus  created 
Secretary  Duane.  in  the  Treasury.  For  this  place  he  chose 
Duane.  He  never  interrogated  Duane  be- 
forehand as  to  the  removal  of  the  deposits,  but  he  must 
have  had  the  impression  that  he  would  concur  in  that  policy, 
this  being  now  his  chief  concern.  He  probably  derived  this 
impression  from  the  fact  that  Duane  had  opposed  the  origi- 
nal charter  of  the  bank. 

Duane  was  a  conscientious,  high-minded  man,  and  he  did 
not  want  the  office.  He  hesitated  about  taking  it  but  finally 
decided  to  do  so  as  a  matter  of*  public  duty.  He  was  sworn 
in  on  the  first  day  of  June.  On  the  evening  of  that  day  he 
received  a  call  from  Whitney,  of  the  Kitchen 
Cabinet,  who  said  that  he  came  at  the  Presi- 
dent's request  to  tell  him  what  was  contem- 
plated about  the  public  deposits.  Whitney  favored  him  with 
a  paper  drawn  up  by  himself  on  the  subject.  The  next 
evening  Whitney  came  again,  bringing  Amos  Kendall,  whom 
he  introduced  as  a  gentleman  in  the  President's  confidence, 
who  could  give  further  information  on  the  subject  of  the 
contemplated  removal  of  the  deposits.  Duane  was  naturally 
much  mortified  to  find  himself  thus  reduced  to  a  cipher  in 
his  own  Department.  The  next  day  he  saw  the  President, 
who  began  at  once  talking  about  the  bank  and  the  deposits. 
Duane  interrupted  to  say  that  he  had  heard  these  things 


END  OF  THE  GREA  T  BANK.  303 

from  Whitney,  who  said  he  had  called  at  the  President's 
request.  The  President  denied  that  he  had  authorized  Whit- 
ney to  call  on  him,  but  the  latter  continued  to  think  that  he 
had  done  so,  and  in  his  book  offered  evidence  to  that  effect.1 
In  this  conversation  Duane  said  that«he  feared  he  should 
not  be  able  to  see  the  matter  in  the  same  light  as  the  Presi- 
dent, and  suggested  a  reference  of  it  to  Congress,  or  to  the 
judiciary  by  a  proper  proceeding,  to  which  the  President 
replied  that  he  had  no  confidence  in  either.  He  talked  to 
Duane  in  a  very  friendly  way  and  said  that  he  was  about 
taking  a  journey  to  New  York  and  Boston,  and  would  send 
him  his  views  in  writing  during  his  absence.  In  a  letter 
dated  Boston,  June  26,  1833,  he  enclosed  a  long  and  able 
paper,  which  Duane  believed  was  written  by  Kendall,  stating 
all  the  actual  misdeeds  of  the  bank  and  several  imaginary 
ones.  The  duplicity  and  illegality  of  the  arrangement  with 
the  Barings  about  the  3  per  cents  were  especially  dwelt  upon, 
as  showing  a  condition  of  financial  weakness 
which  ought  not  to  be  disregarded.  The  ar- 
bitrary and  unjustifiable  conduct  of  the  bank 
in  the  matter  of  the  French  draft  was  referred  to  as  showing 
that  it  had  no  claim  upon  public  sympathy.  The  danger 
of  corruption  arising  from  the  command  of  such  large  sums 
of  public  money  was  advanced  as  a  reason  for  curtailing 
such  formidable  powers.  This  could  be  done  in  part  by 
removing  the  public  deposits,  which  would,  in  his  judgment, 
be  safer  if  judiciously  distributed  among  the  State  banks. 
The  letter  closed  with  some  suggestions  of  the  requirements 
to  be  exacted  of  any  banks  that  might  be  chosen  to  receive 
the  deposits.  The  method  of  withdrawing  the  deposits 
would  be  merely  to  stop  putting  public  money  into  the  bank. 

1 "  Narrative  and  correspondence  concerning  the  removal  of  the  de- 
posits, and  occurrences  connected  therewith."  Only  250  copies  were 
printed,  for  private  distribution. 


304  REPRESENTATIVE  MONEY. 

and  drawing  out  what  was  deposited  there,  as  it  might  be 
needed  for  ordinary  disbursements.  In  the  private  letter 
which  accompanied  this  argumentative  discourse,  the  Presi- 
dent said:  "In  making  to  you,  my  dear  sir,  this  frank 
and  explicit  avowal  of  my  opinions  and  feelings  it  is 
not  my  intention  to  interfere  with  the  independent  exer- 
cise of  the  discretion  committed  to  you  by  law  over  the  sub- 
ject." 

Duane  replied  that  he  had  considered  the  bank  charter 
unconstitutional  from  the  beginning,  that  he  had  been  op- 
posed to  a  recharter  all  the  time,  and  that  he  considered  the 
acts  of  the  bank  in  respect  of  the  3  per  cents  and  the  French 
draft  highly  reprehensible.  At  the  same  time  he  considered 
the  public  deposits  a  part  of  the  contract  with  the  bank,  for 
which  a  valuable  consideration  had  been  paid,  and  in  the 
absence  of  evidence  that  the  bank  was  an  unsafe  depository 

he  should  consider  a  removal  of  them  a  viola- 
Duane's  Reply,  tion  of  the  spirit  of  the  contract,  which  to  an 

honorable  man  was  the  same  thing  as  a  viola- 
tion of  the  letter  of  it.  The  law  which  authorized  him  to 
remove  them  required  him  to  give  his  reasons  to  Congress 
for  doing  so.  But  he  had  no  reasons  to  give.  Conse- 
quently the  act  would  be  arbitrary  and  needless.  Another 
reason,  and  perhaps  a  stronger  one,  was  found  in  the  alter- 
native measure  suggested  by  the  President,  /.<?.,  depositing 
the  money  in  State  banks.  There  was  no  authority  in  law 
for  this.  Congress  had  fixed  the  place  for  keeping  the  pub- 
lic moneys.  It  was,  therefore,  incumbent  on  the  Secretary 
to  refer  to  Congress  the  subject  of  another  place  if,  for  any 
reason,  it  should  be  determined  to  withdraw  them ;  more 
especially  since  the  House  had  just  voted  that  the  deposits 
were  safe  in  the  bank.  If  the  experiment  of  depositing  in 
State  banks  should  result  in  loss  to  the  government  he 
would  be  liable  to  the  severest  censure  and  would  be  abso- 


END  OF  THE  GREAT  BANK.  305 

lutely  defenseless.  Moreover  a  failure  of  this  "precipitate, 
undigested,  and  unsanctioned  scheme"  would  give  the  bank 
a  new  and  perhaps  irresistible  claim  to  a  recharter. 

Further  correspondence  followed  without  changing  the 
views  of  either.  Meanwhile  Amos  Kendall  had  been  sent 
by  Duane,  at  the'President's  instance,  on  a  mission  to  the 
State  banks  in  the  principal  Atlantic  cities  to  see  what  ar- 
rangements could  be  made  with  them  for  receiving  the  pub- 
lic deposits.  On  the  22d  of  July  the  Secretary  wrote  to  the 
President:  "But  if,  after  receiving  the  information  and 
hearing  the  discussions,  I  shall  not  consider  it  my  duty,  as 
the  responsible  agent  of  the  law,  to  carry  into  effect  the  de- 
cision that  you  may  make,  I  will,  from  my  respect  for  you 
and  for  myself,  promptly  afford  you  an  opportunity  to  select 
a  successor  whose  views  may  accord  with  your  own  on  the 
important  subject  in  contemplation."  Jack- 
cision0n  son  had  Previously  said  he  would  not  inter- 

fere with  the  Secretary's  independent  exercise 
of  his  judgment.  Duane  now  said  that  if  he  could  not 
finally  agree  with  the  President  he  would  resign.  Both 
failed  of  their  promises.  A  meeting  of  the  Cabinet  was 
held  on  the  iyth  of  September,  at  which  the  President 
asked  each  member  for  his  opinion  on  the  subject  of  remov- 
ing the  deposits.  On  the  i8th  another  meeting  was  held,  at 
which  he*read  a  paper  containing  his  own  views  and  decision 
on  the  subject,  and  it  was  forthwith  published  in  the  news- 
papers. As  Mr.  Duane  still  remained  obdurate,  the  Globe 
newspaper  of  the  2oth  contained  an  official  announcement 
that  the  public  deposits  would  be  removed  from  the  Bank 
of  the  United  States  to  the  State  banks  as  soon  as  the  neces- 
sary arrangements  could  be  made.  Upon  seeing  this  Duane 
immediately  called  upon  the  President,  bringing  with  him  a 
letter  saying  that  he  would  neither  remove  the  deposits  nor 
resign.  The  President  was  surprised  and  grieved,  as  he 


306  REPRESENTATIVE  MONEY. 

had  calculated  on  Duane's  resignation  ana  had  arranged  to 
appoint  him  Minister  to  Russia. 

It  is  needless  to  recount  the  reasons  which  led  Duane  to 
change  his  mind,  and  to  require  the  President  to  dismiss 
him.  They  are  wholly  untenable.  They  arose 
Duane's  Mistake,  from  an  exaggerated  view  of  the  independent 
functions  assigned  to  the  Secretary  by  law. 
Those  functions  were  subject,  of  course,  to  the  constitution, 
which  gives  the  President  the  power  to  choose  his  Cabinet 
ministers,  and  hence  to  change  them  at  his  own  pleasure. 
It  follows  necessarily  that  if  Secretary  A  will  not  do  what 
the  President  requires,  the  latter  can  remove  him  and  put 
Mr.  B  in  his  place,  and  so  on  until  he  finds  one  to  his  liking, 
being  answerable  to  Congress  by  impeachment  and  more 
remotely  to  the  bar  of  public  opinion  and  of  history.  This 
does  not  imply  that  the  President  can  require  a  Secretary  to 
transgress  law,  but  when  a  difference  of  opinion  exists  be- 
tween them  as  to  what  the  law  is,  the  views  of  the  President 
must  prevail.  In  that  case  the  Secretary  must  either  yield 
his  opinions  or  retire. 

Andrew  Jackson,  when  not  at  close  quarters  with  an 
enemy,  was  a  man  of  courteous  and  even  charming  manners, 
most  remarkable  in  one  whose  whole  life  had  been  passed 
in  contact  with  savagery  of  one  kind  and  another.  He  de- 
sired to  part  with  Duane  in  friendship,  but  when*  this  was 
impossible  he  dismissed  him  promptly.  Attorney  General 
Taney  was  transfered  to  the  Treasury  Department  the  same 
day.  The  public  deposits  at  this  time  were  a  little  more 
than  nine  millions.  Taney  began  to  deposit  the  incoming 
revenues  in  certain  State  banks  selected  by 
Kendall,  and  gradually  to  draw  the  govern- 
ment's money  out  of  the  Bank  of  the  United 
States.  In  compliance  with  law  Taney  laid  before  Congress 
the  reasons  for  his  action.  They  were  the  same  as  those 


END  OF  THE  GREA  T  BANK. 


307 


War  with  the 
Senate. 


which  Jackson  had  urged  in  his  correspondence  with  Duane. 
The  Senate  passed  a  joint  resolution  that  they  were  insuf- 
ficient, but  the  House  rejected  it. 

On  the  1 8th  of  December  Mr.  Binney  presented  to  the 
House  a  memorial  of  the  bank  reciting  the  action  of  Taney 
as  a  violation  of  its  charter  and  asking  redress.  The  bank 
controversy,  which  had  been  red-hot  before,  now  became 
white  hot,  and  led  to  several  exciting  episodes.  McDuffie 
began  the  debate  in  the  House  by  denouncing  the  removal 
of  the  deposits  as  "an  arbitrary  and  lawless  exercise  of 
executive  power."  The  Senate  rejected  the 
President's  nominees  for  government  directors 
of  the  bank,  who  were  commonly  called  Jack- 
son's spies.  It  then  rejected  the  nomination  of  Taney  as 
Secretary  of  the  Treasury.  Jackson  immediately  sent  his 
name  in  as  associate  justice  of  the  Supreme  Court,  and  the 
Senate  rejected  him  a  second  time.  Mr.  Clay  offered  a  re- 
solution asking  the  President  whether  the  paper  purporting 
to  have  been  read  by  him  at  the  Cabinet  meeting  of  Septem- 
ber 1 8  was  genuine  or  not,  and  if  so  calling  for  a  copy  of  it. 
If  this  paper  had  been  a  private  communication,  he  said, 
the  Senate  would  have  no  right  to  call  for  it,  but  since  it 
had  been  published  in  the  newspapers  he  considered  that 
they  had  a  right  to  ask  for  a  copy  in  order  to  be  assured  of 
its  genuineness.  Mr.  Forsyth  thought  that  the  Senate  had 
no  concern  with  it  one  way  or  the  other.  The  mere  fact  of 
its  publication  in  a -newspaper  did  not  confer 
uPon  the  Senate  anv  additional  powers  in 
respect  of  it.  Mr.  Webster  suggested  that  the 
resolution  be  modified,  so  as  to  leave  out  all  words  touching 
the  genuineness  of  the  paper,  and  simply  calling  for  a  copy 
of  it.  The  resolution  as  modified  was  adopted  by  23  to  18. 
The  next  day  the  President  replied  that  the  Senate  had  no 
constitutional  right  to  interrogate  him  on  the  subject  of  his 


308  REPRESENTATIVE  MONEY. 

communications  to  his  Cabinet,  whether  verbal  or  written, 
and  that  he  was  constrained  by  a  sense  of  self-respect  to 
decline  compliance  with  the  request.  Thus  the  war  between 
the  President  and  the  Senate  began  with  a  victory  for  the 
former.  The  public  so  interpreted  it.  The  Senate  had 
committed  an  impertinence  and  had  been  snubbed. 

It  would  have  been  well  if  Mr.  Clay  had  stopped  here,  but 
he  introduced  new  resolutions  on  the  26th,  one  of  which  re- 
cited that  the   President  had  "assumed  the  exercise  of  a 
power  over  the  Treasury  of  the  United  States  not  granted 
to  him  by  the  constitution  and  laws  and  dangerous  to  the 
liberties  of  the  people."     This  resolution  slightly  changed 
in  words  but  not  in  meaning,  was  passed,  March  28,   1834, 
by  26  to  20.     On  the  iyth  of  April  the  Presi- 
dent sent  to  the  Senate  a  long  protest  against 
the  resolution,  which  he  desired  to  have  entered 
on  the  journal  of  that  body.     There  was  a  hot  debate  in 
which  Clay,  Webster,   Calhoun,   Benton,  and   Silas  Wright 
took  part.    On  the  yth  of  May  the  Senate  voted  by  27  to  1 6 
that  the  protest  was  a  breach  of  the  privileges  of  the  Senate 
and  that  it  should  not  be  entered  on  the  journal. 

Next  came  the  struggle  over  Benton's  "expunging  resolu- 
tion," the  fiercest  contest  that  had  been  witnessed  as  yet  in  the 
political  annals  of  the  nation.  Benton  had  moved  that  the 
resolution  of  censure  be  not  merely  repealed, 
Benton's  Ex-  but  expunged  and  erased  from  the  Senate  jour- 
lution.  nal-  To  this  end  he  pledged  all  his  future  life, 

and  he  believed  that  posterity  would  take  up 
the  fight  after  his  death  and  carry  it  on  to  triumph.  Ex- 
punging now  became  the  principal  issue  in  the  press  and  on 
the  stump  and  in  all  elections,  the  Jackson  party  gaining 
ground  constantly.  In  1836  the  expungers  gained  several 
seats  in  the  Senate,  so  that  they  were  enabled  to  pass  by  24 
to  19  a  resolution  ten  times  as  long  as  the  one  to  be  ex- 


END  OF  THE  GREA  T  BANK.  309 

punged,  containing  several  stump  speeches,  and  ending  with 
an  order  to  the  Secretary  of  the  Senate  to  bring  in  the  jour- 
nal of  the  session  1833-34,  draw  black  lines  around  the 
resolution  of  censure,  and  write  across  it  in  strong  letters 
the  words  "expunged  by  order  of  the  Senate  this  i6th  day  of 
January,  in  the  year  of  our  Lord,  1837."  This 

Senate*7 ^  was  ^one'  says  t^ie  recoi"d,  "in  tne  presence  of 
such  Senators  as  remained,  many  having  re- 
tired." There  were  some  hisses  in  the  gallery.  Benton 
demanded  that  the  "bank  ruffians"  be  arrested  and  brought 
to  the  bar  of  the  Senate.  One  man  was  seized,  "a  tall 
well-dressed  man  wrapped  in  a  black  overcoat."  The  Senate 
was  straightway  in  perplexity  to  know  what  to  do  with  him, 
and  Benton  was  as  much  perplexed  as  anybody.  Several 
motions  to  adjourn  were  put  and  lost.  Finally  a  motion  to 
discharge  him  was  carried  by  23  to  i,  Benton  himself  voting 
for  it.  The  prisoner  instead  of  departing  exclaimed  :  "  Mr. 
President,  am  I  not  to  be  permitted  to  speak  in  my  own  de- 
fense?" "Take  him  out,"  shouted  the  chair  (King  of  Ala- 
bama), and  the  Senate  adjourned  in  something  like  a  farce.1 
To  Mr.  Webster's  mind  it  was  more  like  a  tragedy,  and  a 
burial  of  the  republic.  Just  before  the  vote  was  taken  he 
made  a  solemn  protest  against  this  unconstitutional  act. 
The  constitution  required  each  house  to  "keep 
a  journai  Of  its  proceedings"  and  now  the 
Senate  was  about  to  obliterate  a  part.  If  it 
could  expunge  a  part  it  could  expunge  the  whole.  There 
was  no  getting  away  from  that,  but  Benton  and  his  followers 
held  that  the  Senate  had  violated  the  constitution  when  it 
censured  the  President  for  an  act  which  was  within  his  own 
discretion,  and  that  the  expunging  of  the  censure  merely 
restored  the  status  quo  ante.  Floods  of  ink  have  been  shed 
on  the  subject,  as  they  have  been  on  the  right  of  a  State  to 
1  Congressional  Debates,  1836-37,  p.  506. 


310  REPRESENTATIVE  MONEY. 

secede.  The  question  is  one  of  those  which  have  to  be 
settled  by  time.  This  tribunal  has  settled  it  in  Jackson's 
favor. 

The  bank  controversy  did  not  end  here.  It  lasted  through 
the  whole  of  Van  Buren's  administration  and  half  of  Tyler's. 
In  the  year  1835  all  hope  of  a  re-charter  had  disappeared. 
The  bank  was  in  a  strong  position  financially,  having, 
on  the  first  day  of  May,  loans  $38,000,000,  domestic  bills 
of  exchange  $24,000,000,  specie  $14,000,000,  circulation 
$20,000,000,  individual  deposits  $9,000,000.  As  it  could 
not  keep  its  branches  after  the  national  charter  expired  it 
gradually  sold  them.  If  it  had  gone  into  peaceful  liquida- 
tion, like  its  predecessor,  its  shareholders  would  have  blessed 
instead  of  cursing  it,  its  friends  would  have  been  justified 
and  its  enemies  confounded.  Nicholas  Biddle 
Mistake*  *  would  have  passed  a  serene  old  age  and  would 
have  been  considered  by  posterity  the  nation's 
greatest  banker.  If  the  bank  had  curtailed  its  capital  to 
the  amount  that  could  be  profitably  used  in  its  new  sphere 
and  in  the  changed  conditions  which  were  coming,  and  had 
paid  the  excess  back  to  its  shareholders  while  it  could,  it 
might  be  living  to-day  alongside  the  Bank  of  North  America 
and  the  Girard  Bank,  its  elders  and  its  neighbors.  Pride 
would  not  allow  this  giant  among  banks  to  reduce  its  size  to 
correspond  with  its  new  place  and  belongings.  Mr.  Biddle, 
after  filling  so  large  a  space  in  the  world,  could  not  shrink 
to  his  proper  dimensions. 

On  the  1 8th  of  February,  1836,  the  Legislature  of  Penn- 
sylvania granted  a  charter  to  the  United  States  Bank  of 
Pennsylvania  for  thirty  years.  It  was  accepted.  Mr.  Biddle 
said  that  he  considered  it  more  favorable  than  the  original 
one  from  Congress.  An  enormous  bonus  was  paid,  or 
promised,  to  the  State,  two  millions  in  cash,  and  one  hundred 
thousand  dollars  per  year  for  twenty  years,  besides  various 


END  OF  THE  GREAT  BANK.  311 

subscriptions  to  the  stock  of  railroads,  canals  and  turnpikes 
in  the  State.  Benton  said  that  every  circumstance  of  its  en- 
actment betokened  bribery  of  the  members  who  passed  it, 
and  an  attempt  to  bribe  the  people  by  distributing  the  bonus 
among  them.  There  is  too  much  reason  to  agree  with  him. 
The  government  was  still  a  shareholder  in  the 

The  Peimsyl-  bank  to  the  par  value  of  $7,000,000,  and  there 
vania  Charter.  * ' ' 

was  some  trouble  in  getting  this  money  out, 

but  it  was  paid  in  four  annual  installments  at  the  rate  of 
115.58.  New  stock  was  sold  in  place  of  it,  so  that  the  capi- 
tal remained  at  $35,000,000.  Jackson's  plan  was  now  fully 
carried  out,  except  that  the  bank  was  not  killed.  The  gov- 
ernment had  got  every  dollar  of  its  own  money  back,  and 
the  bank  was  on  the  way  to  kill  itself  more  miserably  than 
its  enemies  could  have  wished. 

When  the  bank  found  itself,  with  its  enormous  capital,  re- 
stricted to  Philadelphia  and  the  neighboring  country,  it 
gradually  turned  itself  into  a  finance  company.  Hitherto  it 
had  confined  itself  to  the  banking  business  as  strictly  as 
banks  usually  do,  discounting  commercial  paper,  buying  bills 
of  exchange  and  dealing  in  coin  and  bullion.  Now  it  ad- 
vanced money  largely  on  stocks.  It  began  to 
wad  Specula-  (JQ  tn's  ag  soon  ag  ^  -^ea  Q£  obtaining  a  re- 
charter  from  Congress  was  abandoned.  Be- 
fore March,  1836,  it  had  twenty  million  dollars  thus  in- 
vested. The  country  was  now  in  the  fever  of  speculation 
which  culminated  in  the  panic  of  1837.  "During  this  time," 
says  Mr.  John  J.  Knox,  "the  loans  on  stocks  continually  in- 
creased. It  seemed  impossible  for  the  managers  to  say  no 
to  any  one.  All  projects  were  -favorably  received,  and  the 
projectors  found  in  Mr.  Biddle  a  sympathetic  listener.  .  .  . 
Bonds  of  Mississippi,  Michigan  and  Illinois,  of  the  Territory 
of  Florida,  and  even  of  the  struggling  republic  of  Texas,  re- 
ceived from  him  the  impress  that  was  to  make  them  pass  in 


312  REPRESENTATIVE  MONEY. 

the  markets  of  the  world.  Few  appear  to  have  been  sent 
away  disappointed.  He  was  the  president  of  the  bank  from 
January,  1823,  to  March,  1839,  when  he  resigned,  leaving 
the  bank,  as  he  said,  prosperous.  In  1840  it  was  found  that 
the  assets  of  the  institution  consisted  chiefly  of  all  kinds  of 
internal  improvement,  and  bank  and  State  stocks  and  bonds. 
There  was  hardly  an  enterprise,  good,  bad  or  indifferent,  in 
the  United  States,  that  was  not  represented  in  the  list."  1 

The  bank  suspended  in  1837  in  common  with  nearly  all  the 
other  banks;  it  suspended  again  in  1838,  and  a  third  and  last 
time  in  1841.  Its  liquidation  was  protracted 
through  fifteen  years.  It  paid  its  creditors  in 
full,  principal  and  interest,  but  the  share- 
holders lost  every  penny.  Biddle  lost  all  of  his  own  money. 
His  town  house  and  his  country  house  were  sold  by  the 
sheriff.  Old  friends  cut  him  on  the  street.  Societies  of 
which  he  was  a  member  considered  his  presence  among 
them  an  intrusion.  He  was  indicted  by  the  grand  jury  for 
conspiracy  to  defraud  the  shareholders  of  the  bank,  but  the 
indictment  was  quashed.  He  was  not  guilty  of  anything  but 
bad  banking.  A  civil  action  was  brought  against  him  by 
the  bank  for  $1,018,000  for  which  no  vouchers  could  be 
found.  Ingersoll,  who  was  personally  familiar  with  all  the 
parties,  says  that  Biddle  was  no  more  to  blame  than  the 
other  directors  for  the  final  catastrophe.  He  died  poor  and 
broken-hearted  at  the  age  of  58. 

It  is  perfectly  clear  that  the  bank  war  grew  out  of  the  at- 
tempt of  Jackson's  Kitchen  Cabinet  to  use  the  bank  for 
party  purposes.  They  wanted  to  make  the  Portsmouth 
branch  a  part  of  the  spoils  of  politics.  If  they  had  suc- 
ceeded in  this  they  would  not  have  stopped  short  of  control- 
ling everything.  It  was  only  necessary  for  them  to  persuade 
the  President  that  the  bank  was  against  his  administration. 

1  History  of  Banking,  in  Rhodes'  Journal  of  Banking,  May,  1892. 


BANKING  DE  VEL  OPMENT  IN  MASS  A  CIIUSE  TTS.       313 

» 

It  was  easy  to  do  this  because  his  hearing  was  preternat- 
urally  acute  on  the  subject  of  an  enemt.     Andrew  Jackson, 
whatever  else  may  be  said  of  him,  is  the  most 
Moral.  imposing  figure  in  our  history  between  Wash- 

ington and  Lincoln.  In  this  battle  he  was  in 
the  wrong,  but  not  more  so  than  some  other  great  men  who 
have  escaped  censure.  It  does  not  follow  that  the  bank 
would  be  a  desirable  institution  to-day,  or  that  it  would  have 
lived  to  this  day  if  Jackson  had  kept  hands  off.  As  the 
spoils  system  would  have  come  without  him,  so  too  would 
the  bank  have  been  embroiled  in  party  strife  sooner  or  later, 
nolens  volens. 


CHAPTER    VIII. 
BANKING   DEVELOPMENT   IN   MASSACHUSETTS.1 

THE  charter  of  the  Bank  of  Massachusetts,  granted  in 
1784,  contained  no  restrictions  or  conditions  except  the 
right  of  the  Legislature  to  examine  its  affairs.  No  mention 

was  made  of  circulating  notes,  but  another 
clrasetts  *  ^aw  was  Passe<^  by  tne  same  Legislature  to 

punish  persons  who  should  counterfeit  them. 
The  first  restrictions  imposed  by  law  were  enacted  in  1792. 
These  were :  (i)  That  the  bank  should  not  issue  notes 
smaller  than  $5  ;  (2)  That  the  outstanding  notes  and  loans 
should  not  exceed  double  the  amount  of  "the  capital  stock 
in  gold  and  silver  actually  deposited  in  the  bank";  (3)  In 
case  of  violation  of  this  law,  the  directors  were  made  per- 
sonally liable  for  the  debts  of  the  bank,  but  those  who  were 
absent  or  had  dissented  might  exonerate  themselves  by  giv- 
ing notice  forthwith  to  the  Governor  of  the  Staj:e  ;  (4)  State- 

1  Regulations  which  have  become  obsolete,  unless  of  special  impor- 
tance, will  be  omitted  in  this  sketch. 


314  REPRESENTATIVE  MONEY. 

% 

ments  of  the  bank's  affairs  were  to  be  given  to  the  Governor 
and  Council  every  six  months,  but  no  form  of  statement 
was  prescribed  ;  (5)  The  bank  was  prohibited  from  dealing 
in  merchandise  or  in  the  shares  of  any  bank. 

All  of  these  restrictions,  except  the  first,  were  of  perma- 
nent value  and  have  survived  to  this  day.  The  question 
whether  a  bank  should  be  allowed  to  issue  notes  smaller 
than  $5  or  $10  is  still  a  matter  of  controversy.  I  cannot  see 
any  objection  to  small  notes  —  any  more  than  to  silver  half- 
dollars,  quarters  and  dimes,  the  metallic  value  of  which  is 
now  so  small  that  they  may  be  classed  with  other  fiduciary 
instruments.  It  is  said  that  the  suppression  of  small  notes 
in  this  country  would  compel  the  circulation 

of  s°ld  from  hand  to  hand  to  the  extent  °f 

perhaps  two  hundred  millions,  and  thus  retain 
it  in  the  country.  But  this  circulation  is  inconvenient,  else 
it  would  not  need  to  be  forced.  It  involves,  moreover,  a 
certain  amount  of  waste  of  the  metal  by  abrasion,  and  also 
the  loss  of  interest  on  the  amount  of  capital  involved,  be- 
cause gold  will  pay  debts  abroad  or  will  bring  in  capital  of 
equal  value.  A  certain  amount  of  gold  is  necessary,  as  has 
been  explained,  to  pay  balances  of  international  trade,  and 
to  serve  as  a  touchstone  of  the  paper  circulation,  but  it  does 
not  follow  that  any  considerable  part  of  it  should  be  passing 
from  hand  to  hand,  and  wearing  out  people's  pockets. 

The  Bank  of  England  is  not  allowed  to  issue  notes  smal- 
ler than  five  pounds  sterling,  although  smaller  ones  are  al- 
lowed in  Scotland  and  Ireland.  I  once  asked  Mr.  William 
Newmarch,  one  of  the  foremost  of  England's 
S  economists  and  practical  financiers,  what  ob- 
jection there  was"  to  one-pound  notes  in  that 
country.  He  -replied  that  if  England  should  be  engaged  in 
war  and  be  reduced  to  extremities,  it  would  be  a  great  ad- 
vantage to  have  eighty  or  a  hundred  millions  sterling  of  gold, 


BANKING  DE  VEL  OPMENT  IN  MASS  A  CHUSE  TTS.       315 

which  the  government  could  lay  its  hands  on  by  issuing 
small  notes  to  that  amount.  He  said  that  he  did  not  know 
any  other  valid  reason  for  the  prohibition  of  one-pound 
notes.  As  we  are  not  much  exposed  to  war,  this  considera- 
tion does  not  weigh  with  us.  On  the  other  hand,  we 
are  so  accustomed  to  small  notes,  and  their  convenience 
is  so  generally  recognized,  that  any  attempt  to  suppress 
them  would  meet  with  active  resistance.  The  restriction 
against  small  notes  was  repealed  in  Massachusetts  as  early 
as  1805. 

In  1792  the  Union  Bank  was  incorporated.     Here  was  in- 
troduced in  behalf  of  the  farming  community  a  provision 
which  reappeared  in  many  subsequent  char- 
Union  Bank.         ters.     It  was  required  that  one-fifth  of  the  en- 
tire funds  of  the  bank  should  be  appropriated 
to  loans  outside  of   Boston,    "wherein    the    directors    shall 
wholly   and    exclusively    regard    the    agricultural    interest." 
These  loans  were  to  be  made  on  mortgage  security.     The 
bank  was  also  required  to  lend  the  State  of  Massachusetts 
a  sum  not  exceeding  $100,000  at  5  per  cent  interest,  repay- 
able in  five  annual  installments,  and  the  State 

The  state  be-        was  to  have  the  privilege  of  subscribing  for 
comes  a  Stock- 
holder, one-third  of  the  capital  stock,   which  it  did. 

The  two  last  mentioned  clauses  were  inserted 
in  many  subsequent  charters  and  were  availed  of,  and  this 
example  was  followed  by  many  other  States.  The  Union 
Bank  was  allowed  to  have  branches. 

In  the  charter  of  the  Union  Bank  some  attention  was 
ven  to  the  method  of  paying  up  the  capital  stock.  It  was 
required  to  be  paid  in  three  installments.  If  any  subscriber 
should  fail  to  pay  at  the  times  designated,  he  should  lose 
his  right  to  subscribe,  and  forfeit  to  the  corporation  all  his 
previous  payments.  From  this  time,  during  half  a  century, 
there  wa^  a  struggle  in  Massachusetts,  and  in  nearly  all  the 


316  REPRESENTATIVE  MONEY. 

States,  to  compel  the  subscribing  shareholders  of  banks  to 
pay  up  their  shares.  Banking  was  the  favorite  form  of 
-  speculation.  A  bank  lends  its  notes  to  bor- 
rowers  and  receives  interest  on  them,  but  the 
notes  are  themselves  debts  of  the  bank.  Thus 
banking  presented  itself  to  the  public  mind  seductively  as  a 
method  of  living  on  the  interest  of  the  debts  you  owe.  Bank 
charters  were  eagerly  sought.  The  speculators  in  shares 
were  not  slow  in  perceiving  that  their  profits  might  be  in- 
creased by  making  the  bank,  or  in  other  words,  the  public, 
advance  the  money  for  the  shares,  by  discounting  the  notes 
of  the  subscribers.  This  was  banking  on  wind,  and  it  had 
disastrous  consequences,  which  will  be  more  fully  considered 
hereafter.  The  policy  of  Massachusetts  in  this  regard  was 
upon  the  whole  sound,  but  it  was  variable,  showing  that 
some  people  could  get  privileges  inserted  in  bank  charters, 
which  others  could  not.  In  1795  the  charter  of  the  Nan- 
tucket  bank  contained  a  provision  that  no  stockholder  should 
be  allowed  to  borrow  at  the  bank,  as  or  after  any  installment 
should  become  due,  until  he  should  have  paid  his  full  pro- 
portion of  such  installment.  This  did  not  prevent  borrow- 
ing back  the  same  money  after  it  had  been  paid  in.  In  the 
following  year  the  Merrimac  Bank  of  Newburyport  was 
chartered  with  a  capital  stock  of  not  less  than  $70,000,  nor 
more  than  $150,000.  No  loans  were  to  be  made  to  share- 
holders until  they  had  paid  their  proportion  of  $70,000.  If 
they  should  choose  to  have  a  capital  of  $150,000,  they  might 
borrow  from  the  bank  itself  all  except  the  first  $70,000. 

There  was  much  contrariety  of  legislation  until  1804,  when 
several  charters  contained  an  express  provision  that  no  money 
should  be  loaned  to  anybody  until  satisfactory  evidence  was 
presented  to  the  Governor  and  Council  "that  the  whole  capi- 
tal stock  aforesaid  is  actually  paid  in  and  existing  in  gold, 
silver  or  other  coined  metals  in  their  vaults."  Even  this 


BANKING  DEVELOPMENT  IN  MASSACHUSETTS.       317 

provision  was  not  sufficient,  for  it  was  proved  in  more  than 
one  case  that  banks  borrowed  the  entire  amount  of  their  capi- 
tal in  gold  and  silver  coin  from  other  banks 

Struggle  to  Com-  ancj  having  exhibited  it  to  the  public  officers, 

pel  Payment  of  .    .  .         .    .    f  . 

Capital  stock.       returned  it  to  the  rightful   owners   the    same 

day.  Accordingly  in  1811,  a  clause  was  in- 
serted in  the  charter  of  the  State  Bank,  requiring  the  direc- 
tors to  take  an  oath  that  the  money  paid  in  was  intended  to 
remain  there  as  the  capital  of  the  bank.  This  proviso  was 
considerably  amplified  and  strengthened  in  the  charter  of 
the  New  England  Bank  in  1813.  Three  commissioners  were 
to  be  appointed  by  the  Governor  to  count  the  gold  and  sil- 
ver and  take  the  oath  of  the  directors  that  it  had  been  paid 
in  bonafide  by  the  stockholders  as  the  bank's  capital,  and  for 
no  other  purpose,  and  that  it  was  intended  to  remain  there. 
In  1822  it  was  enacted  in  the  charter  of  the  Columbian 
Bank,  that  no  shares  should  be  sold  or  transferred  until  one 
year  after  organization,  and  in  that  of  the  Franklin  Bank  of 
Greenfield,  that  no  dividends  should  be  declared  until  the 
whole  capital  was  paid  in. 

In  the  Portland 'Bank  charter  (1799)  the  word  "specie" 
appears  for  the  first  time.  The  capital  was  to  be  paid  in 
specie,  not  in  the  notes  of  other  banks.  There  were  several 
unincorporated  banks  doing  business  at  this  time,  issuing 
notes  as  well  as  receiving  deposits  and  making  loans.  In 
1799  a  law  was  passed  to  suppress  them,  both  as  note-issuing 
and  as  money-lending  institutions. 

In  1803  the  Boston  Bank  was  incorporated  with  a  capital 
stock  not  exceeding  $1,200,000  in   "gold   and  silver,"   no 
money  to  be  loaned  until  $600,000  had  been 
paid  in,  and  debts  to  or  from  the  bank  not  to 
exceed- double  the  amount  of  the  capital  stock 
:tually  paid  in,  no  exception  being  made  as  to  deposits. 
:n  addition  to  the  capital  stock  the  State  was  to  have  an  in- 


318  REPRESENTATIVE  MONEY. 

terest  in  the  bank  equal  to  $600,000  by  depositing  in  it  that 
amount  of  United  States  6  per  cent  stock,  which  it  owned, 
at  par.  The  bank  was  not  to  sell  the  stock,  but  to  receive 
all  payments  of  interest  or  principal  on  the  same,  the  State 
to  receive  dividends  pro  rata  with  other  shareholders.  It 
was  provided_that  if  the  bank's  notes  should  be  altered  by 
forgers  the  bank  should  be  liable  to  innocent  holders  for 
the  original  amount  of  the  notes.  There  was  a  provision 
that  the  specie  of  which  the  capital  stock  consisted  could 
not  be  taken  from  any  other  bank  in  the  State.  One-eighth 
of  all  the  loans  were  to  be  made  outside  of  Boston  to  farmers. 
In  1807  the  State  elected  six  directors  of  this  institution. 

In  1811  the  State  Bank  was  chartered,  being  the  fourth 
in  point  of  time  and  the  largest  in  amount  of  capital,  viz. : 
$3,000,000.  The  three  others  (Massachusetts, 
The  State  Bank.  Union  and  Boston)  were  controlled  by  Federal- 
ists. The  incorporators  of  the  State  Bank 
were  leading  members  of  the  Republican  party  of  that  day. 
There  was  straightway  an  outburst  of  party  rage,  which 
Seems  very  ludicrous  now,  but  was  very  serious  then.  When 
the  petition  for  the  bank  came  before  the  Legislature,  with 
the  names  of  William  Gray,  Russell  Sturgis,  Henry  Dear- 
born and  John  Brazer  attached  to  it,  the  Federalists  did 
everything  in  their  power  to  defeat  it,  but  it  passed  by  a 
close  vote.  Immediately  the  newspapers  were  filled  with 
scurrilous  attacks  upon  the  proposed  bank  and  its  promoters. 
One  of  them  said  that  the  passage  of  the  bill  would  cost  the 
State  $200,000  by  depreciation  of  its  shares  in  the  Union 
and  Boston  banks.  Another  said  that  the  bill  was  uncon- 
stitutional and  that  it  was  passed  by  corrupt 

Charters'1  Bant    means-       A  thirc*   asked   Mr-   William    Gray  : 

"  Do  not  the  cries  of  the  widows  and  orphans, 

who  are  to  be  deprived  of  their  bread  by  the  instrumentality 

of  your  bank,  and  the  intended  ruin  of  other  banks,  some- 


BANKING  DE  VEL  OPMENT  IN  MASS  A  CHUSE  TTS.       319 

times  haunt  your  pillow?"  A  fourth  advised  all  Feder- 
alists to  boycott  the  new  bank,  saying  :  "  If  the  spirit  of 
their  fathers  has  not  taken  its  flight  from  among  them  they 
will  not  be  allowed,  by  the  murky  spirit  of  speculation,  to 
hold  communion  with  friends  begotten  in  darkness,  engen- 
dered in  wrath  and  brought  forth  in  pollution  and  sin,"  - 
whatever  that  might  mean. 

The  incorporators,  being  thus  assailed,  resolved  to  re- 
strict the  shares  as  much  as  possible  to  members  of  their 
own  party.  They  appointed  committees  to  procure  sub- 
scriptions to  the  capital  stock  on  this  plan.  Then  the 
Federalist  newspapers  accused  them  of  introducing  politics 
into  business,  contrary  to  their  professions.  "  It  is  unblush- 
ingly  avowed,"  said  the  Salem  Gazette,  "  that 
the  new  bank  is  intended  as  a  machine  to 
create  Democrats  and  destroy  Federalists.  In 
this  State  there  has  been  so  much  clamor  by  this  very  party 
against  banks,  bank  directors  and  exclusive  privileges,  that 
consistency  required  them  to  discountenance  all.  It  appears 
that  in  each  county  an  electioneering  committee  has  been 
appointed,  who  through  the  influence  of  the  new  bank  are 
to  act  as  almoners  of  Democratic  bribes  and  commissioners 
of  official  corruption."  Among  the  commissioners  so  ap- 
pointed at  Worcester  were  Levi  Lincoln  and  Abraham  Lin- 
coln. The  latter  was  classed  by  the  Worcester  ^Egis  as 
"  an  apostate  Federalist." 

The  State  Bank  was  faithful  to  its   principles  —  indeed, 

too  much  so  for  its  own  good.     It  took  early  occasion  to 

notify  Secretary  Gallatin  that  it  was  friendly  to  the  national 

administration,  that  it  would  like  to  have  a  part 

Goternmlnt.          °f  the  Public   dePosits>   and  that  it;  would   ad~ 
vance  $500,000  to  the  government.     This  hint 

was    immediately    taken.       The    $500,000    was    advanced, 
.nd  other    advances  followed  till  so  large  a  portion  of  its 


320  REPRESENTATIVE  MONEY. 

resources  was  locked  up  in  this  way  that  it  had  lost  the 
power  to  accommodate  its  own  customers.  A  request  to  the 
Secretary  of  the  Treasury  (not  Mr.  Gallatin),  that  a  portion 
of  these  advances  be  repaid  brought  a  reply  in  December, 
1814,  that  payment  would  be  made  through  banks  south  and 
west  of  Philadelphia.  But  these  banks  had  suspended  while 
those  of  New  England  were  still  paying  specie.  The  offer, 
therefore,  was  to  pay  a  specie  obligation  with  paper  at  10  to 
30  per  cent  discount.  When  the  answer  was  received  the 
directors  met  and  resolved  that  "  after  the  exertions  made 
by  this  bank  and  the  loans  to  the  government  which  they 
presume  had  not  been  exceeded,  if  equaled,  in  amount  by  all 
the  other  banks  and  corporations  in  the  United  States,  and 
after  having  done  their  utmost  to  uphold  the  credit  of  the 
United  States,  they  cannot  consider  the  foregoing  declara- 
tion of  the  Secretary  otherwise  than  not  merited  by  the  exer- 
•tions  and  sacrifices  of  the  bank."  ] 

Under  the  charter  of  the  State  Bank  no  loans  or  discounts 
were  to  be  made  until  $600,000  was  paid  and  inspected  by 
three  commissioners  appointed  by  the  Governor.  An  oath  was 
also  required  from  the  directors  that  it  was  intended  to  remain 
there  as  part  of  said  capital.  By  Section  3  neither  the  debts 
nor  credits  of  the  bank  were  to  exceed  double  the  capital 
stock  paid  in,  exclusive  of  deposits,  i.e.,  deposits  were  not  to 
be  counted  in  estimating  the  proportion  between  capital  and 
liabilities.  In  case  of  excess  the  directors  were  personally 
liable,  but  they  might  exonerate  themselves  by 

Penalty  for  giving  notice  to  the  Governor  and  Council  and 

Non-payment  .  ,  .  , 

of  Notes.  to  the  stockholders  at  a  general  meeting  which 

they  might  call  for  that  purpose.     No  director 
of  this  bank  could  be  a  director  of  any  other  bank.     Share- 
holders were  liable,  in  proportion  to  their  stock,  for  all  cir- 
culating notes  unpaid  at  the  expiration  of  the  bank's  charter, 
1  Historical  sketch  of  the  State  Bank,  by  Amos  W.  Stetson. 


BANKING  DE  VEL  OPMENT  IN  MASS  A  CHUSE  TTS.       32 1 

and  also  for  any  deficiency  arising  from  the  mismanage- 
ment of  the  directors.  If  the  bank  should  fail  to  pay  any  of 
its  notes  on  demand  it  should  forfeit  24  per  cent  per  annum 
for  the  delay.  This  was  a  new  and  valuable  idea.  The 
provisions  of  Section  3  were  incorporated  in  nearly  all  sub- 
sequent charters  by  simple  reference  to  it.  The  State  of 
Massachusetts  was  to  have  the  privilege  of  subscribing 
$1,500,000  to  the  capital  stock  of  this  bank,  in  addition  to 
the  other  capital.  It  was  enacted  also  that  all  banks  should 
pay  to  the  State  a  tax  of  one-half  per  cent  on  their  dividends. 
In  1805  the  first  general  banking  law  was  passed.  It 
authorized  banks  to  issue  notes  of  the  denominations  of  $2 
and  $3  to  the  extent  of  five  per  cent  of  their  capital.  It  was 
provided  in  this  law  that  bank  statements 

should   be   made   under  oath'     The   form   of 
these   statements  was   prescribed    in    another 

general  law  passed  in  1806.  They  were  to  show:  (i)  The 
amount  of  capital  stock  paid  in;  (2)  The  value  of  the -real 
estate;  (3)  The  debts  due  to  the  bank  drawing  interest;  (4) 
Those  not  drawing  interest;  (5)  Deposits;  (6)  Outstanding 
notes  and  denominations  of  same;  (7)  Specie  on  hand ;  (8) 
Notes  of  other  Massachusetts  banks  on  hand;  (9)  Notes  of 
banks  of  other  States  on  hand. 

In  1809  the  banks  were  allowed  to  issue  notes  as  small  as 
one  shilling,  but  the  notes  of  banks  of  other  States  smaller 
than  $5  were  not  allowed  to  be  received  on  deposit,  nego- 
tiated, loaned,  or  passed  by  any  bank  or  by  the  Boston  Ex- 
change Office  under  penalty  of  $1,000  for  each  offense.  This 
prohibition  did  not  extend  to  the  notes  of  the  Bank  of  the 
United  States. 

The  New  England  Bank  was  incorporated  in  1813.  Very 
stringent  provisions  were  inserted  in  the  charter  as  to  the 
payment  of  the  capital  stock.  No  business  could  be  trans- 
acted until  $250,000  had  been  paid,  in  gold  or  silver,  and 


322  REPRESENTATIVE  MONEY. 

the  same  inspected  and  examined  by  three  commissioners  to 
be  appointed  by  the  Governor  for  that  purpose,  who  were 
required  to  count  the  money  and  take  the  oath 
of  the  directors  that  it  had  been  bonafide  paid 
in  by  the  stockholders  for  their  respective 
shares  and  not  for  any  other  purpose  and  that  it  was  in- 
tended to  remain  there  as  part  of  said  capital.  This  bank 
gave  the  first  impulse  to  what  was  afterwards  known  as  the 
Suffolk  Bank  system,  by  publishing  in  1813  a  proposal  that 
it  would  charge,  for  sending  bank  notes  home  for  redemp- 
tion, only  the  actual  cost.  This  was  a  bid  for  deposits.  The 
cost  was  y^  per  cent,  and  this  became  the  rate  of  discount 
on  the  notes  of  other  Massachusetts  banks  than  those  of 
Boston.  On  the  2yth  of  January,  1814,  this  bank  sent 
$138,874  of  New  York  bank  notes  to  that  city  for  redemp- 
tion. The  specie  was  put  into  wagons  which  were  started 
towards  Boston.  They  had  proceeded  fourteen  miles  when 
the  Collector  of  the  port  of  New  York  seized  them  and 
ordered  them  to  return,  on  the  pretext  that  the  specie  was 
destined  for  Canada,  but  really  to  discourage  "runs"  on 
the  New  York  banks.  The  matter  was  laid  before  Presi- 
dent Madison  with  a  request  that  the  Collector  be  dis- 
missed. The  Collector  was  not  dismissed,  but  the  money  was 
restored. 

Massachusetts  enacted  general  banking  laws  in  1828, 
in  1835,  in  1860  and  in  1880.  The  banking  law  as  it  ex- 
isted before  the  national  system  came  in  force,  consisted 
of  two  parts,  one  relating  to  chartered  banks,  and  the  other 
to  free  banks.  The  free  banking  law,  which  allowed  persons 
to  organize  banks  at  their  own  pleasure,  on  condition  of  de- 
positing with  the  State  officers,  bond  security  for  their  circu- 
lating notes,  had  been  passed  in  1851,  but  only  seven  banks 
were  organized  under  it.  The  following  were  the  most  im- 
portant provisions  of  law  relating  to  banks  in  1860  : 


BANKING  DE  VEL  OPMENT  IN  MASS  A  CHUSE  TTS.       323 

No  individual  could  hold  more  than  one-half  the  stock  of 
any  bank;  no  person  could  be  a  director  of  more  than  one 
bank  ;  no  person  could  be  a  director  whose  stock  was  pledged 
for  debt.  Neither  the  debts  nor  the  credits  of  a  bank  could 
exceed  twice  the  capital  stock  paid  in,  except  for  deposits 
and  for  debts  to  or  from  other  banks.  Directors  were  per- 
sonally liable  for  violation  of  this  clause  unless  they  dissented 
or  were  absent,  in  which  case  they  must  notify  the  Bank 
Commissioners  of  the  State  forthwith.  No  bank  could  pay 
out  any  notes  but  its  own,  or  issue  any  notes, 
(^leraflaws8  directlv  or  indirectly,  except  at  its  own  bank- 
ing house,  or  issue  any  notes  with  the  under- 
standing that  they  should  be  kept  out  a  certain  length  of 
time.  No  bank  could  make  a  loan  repayable  in  anything 
except  specie  or  its  own  notes.  In  case  of  bank  failure  the 
noteholders  were  to  be  paid  first.  Each  bank  was  required 
to  keep  fifteen  per  cent  of  specie  as  a  reserve  against  both 
circulation  and  deposits,  but  country  banks  might  reckon 
their  balances  in  Boston  banks  payable  on  demand  as  specie. 
The  specie-reserve  clause  was  passed  in  1858.  There  was  a 
provision  that  if  any  new  banks  were  chartered  with  greater 
privileges  than  those  here  enumerated,  the  same  privileges 
should  extend  to  all  other  banks.  The  Act  of '1828  provided 
that  at  elections  for  bank  directors  each  stockholder  should 
be  entitled  to  one  vote  for  the  first  share  and  to  one  vote  for 
every  two  additional  shares  and  so  on,  provided  that  no  per- 
son should  have  more  than  ten  votes.  This  was  reenacted 
in  the  revision  of  1835,  was  dropped  in  the  revision  of  1860 
and  revived  in  that  of  1880. 

In  the  revision  of  1880,  the  law  was  changed  in  some 
particulars.  Banks  were  forbidden  to  lend  more  than  one- 
half  of  their  capital  on  the  pledge  of  their  own  stock  or  more 
than  one-eighth  of  it  to  any  officer  of  the  bank,  or  more  than 
thirty  per  cent  of  it  to  all  the  directors.  No  bank  could  be 


324  REPRESENTATIVE  MONEY. 

organized  with  a  capital  of  less  than  $100,000.  Failed  bank 
notes  should  draw  interest  at  the  rate  of  two  per  cent  per 
month,  and  should  constitute  the  first  lien  on  the  assets. 
The  shareholders  were  subjected  to  double  liability  for  circu- 
lating notes.  Some  of  the  earlier  provisions  were  reenacted 
in  language  more  or  less  changed,  as  for  example  : 

"SECTION  52.  A  bank  which  lends  or  issues  any  of  its 
notes  or  bills  with  an  agreement  or  understanding  that  they 
shall  not  be  put  into  immediate  unrestricted  circulation,  or 
that  they  shall  not  be  returned  to  the  bank  within  a  limited 
time,  shall  forfeit  a  sum  not  exceeding  one-half  nor  less  than 
one-fourth  of  the  sum  so  issued  or  lent." 

All  bank  notes  were  required  to  be  registered.  All  Boston 
banks  were  required  to  make  weekly  reports  and  all  others 
monthly  reports  to  the  Secretary  of  the  Com- 
abandoned1  monwealth.  In  this  revision,  Massachusetts 

definitely  abandoned  her  old  system.  The 
issue  of  circulating  notes,  except  on  bond  security,  was  for- 
bidden. Yet  that  old  system,  worked  out  by  the  experience 
of  three-quarters  of  a  century,  was  a  monument  to  the  intel- 
ligence of  the  State  and  was  one  of  the  best  that  the  world 
has  ever  seen. 


CHAPTER    IX. 
THE  SUFFOLK  BANK  SYSTEM. 

AT  the  time  when  the  Suffolk  Bank  was  chartered  (1818) 
there  were  two  kinds  of  money  in  use  in  Boston,  current  and 

uncurrent  —  a  disease  not  peculiar  to  any 
Funds1"611*  section  of  the  country.  It  existed  at  one  time 

and  another  at  all  the  commercial  centers, 
down  to  the  civil  war.  New  England  was  the  first  to  get 
rid  of  it,  and  the  Suffolk  Bank  was  the  agent  in  effecting  the 


THE  SUFFOLK  BANK  SYSTEM.  325 

) 

cure.  This  was  the  most  important  gain  to  banking  science 
in  America  up  to  that  time. 

The  country  banks  of  New  England  were  banks  of  issue, 
almost  exclusively.  They  had  hardly  any  deposits.  They 
discounted  commercial  paper  at  home,  and  also  in  Boston, 
paying  out  their  own  circulating  notes  therefor.  The  notes 
of  the  Boston  banks  were  at  par  everywhere,  while  those  of 
the  country  banks  were  at  a  discount  in  Boston  of  •  one  per 
cent  and  upwards,  according  to  the  distance  of  their  place  of 
issue,  and  the  difficulty  of  returning  them  for 
TheGresham  redemption.  Here  the  "  Gresham  law  "  came 
into  operation.  (See  Appendix  H.)  The  worse 
money  drove  the  better  out  of  circulation,  for,  although 
neither  was  legal  tender,  yet  custom  and  public  opinion  took 
the  place  of  a  tender  law,  requiring  people  to  accept  bank 
notes  in  their  daily  business.  The  Boston  notes,  being 
worth  100  cents  per  dollar,  were  promptly  returned  to  the 
issuing  banks  as  deposits.  The  country  notes,  being  worth 
only  99  cents,  were  paid  out  by  the  holders  for  purchases, 
for  wages,  etc.,  and  were  thus  kept  in  circulation.  So  it 
came  about  that  when  the  Suffolk  Bank  began  its  career  the 
Boston  banks,  seven  in  number,  and  having  more  than  half 
the  banking  capital  of  New  England,  had  only  one  twenty- 
fifth  part  of  the  circulation. " 

The  New  England  Bank  had  reduced  the  cost  of  redeem- 
ing country  bank  notes  to  a  minimum  before  the  Suffolk  en- 
tered the  field.  The  business,  which  was  fairly  profitable 
for  one,  was  not  sufficient  for  two.  Then  the  Suffolk  man- 
agers conceived  the  idea  of  offering  to  redeem  country  bank 
notes  at  par  if  the  issuing  banks  would  keep  a  fixed  deposit 
with  it,  plus  a  variable  deposit  sufficient  to  redeem  such  of 
their  notes  as  should  reach  Boston  in  the  course  of  trade. 
The  fixed  deposit,  i.e.,  the  interest  on  it,  was  to  reimburse 
the  Suffolk  for  doing  the  business. 


326  REPRESENTATIVE  MONEY. 

This  proposition  seemed  to  the  country  banks  like  paying 
for  heating  a  poker  to  be  thrust  through  their  own  bodies. 
Except  a  few  banks  which  already  kept  a  deposit  at  the 
Suffolk  they  declined  the  proposal  with  indignation.  Then 
the  Suffolk  began  to  collect  their  notes  systematically  and 
send  them  home  for  redemption  in  specie.  The  country 
banks  were  furious,  but  helpless.  They  sought 
Country  Banks  to  enlist  public  opinion  on  their  side  by  say- 
in  Boston.  mg  that  the  Suffolk  was  demanding  of  them 
an  impossibility  —  that  of  redeeming  their 
notes  in  two  places  at  once.  The  Suffolk  had  demanded  no 
such  thing.  It  had  merely  offered  them  the  alternative  of 
redeeming  their  notes  in  Boston  or  at  their  own  counters. 
The  fight  was  bitter.  The  Suffolk  maintained  it  at  first 
single-handed. 

In  1824  it  addressed  a  communication  to  the  other  Boston 
banks  showing  how  the  country  banks  had  been  enabled  to 
monopolize  the  field  by  the  inferiority  of  their  circulation 
"  founded  on  the  very  difficulty  and  uncertainty  of  the  means 
of  enforcing  payment,"  showing  also  that  a  great  part  of  the 
discounts  made  by  the  country  banks  were  made  in  Boston 
in  competition  with  the  city  banks,  their  notes  being  thus 
put  in  circulation  at  a  distance  from  home.  As  the  greatest 
trouble  came  from  the  State  of  Maine,  on  account  of  the 
distance  and  the  bad  roads,  the  Suffolk  proposed  that  a  fund 
should  be  contributed  by  all  the  Boston  banks  for  the  pur- 
pose of  collecting  and  sending  home  the  notes  of  that  State. 
The  proposal  was  agreed  to,  with  an  amendment  that  the  same 
course  should  be  adopted  as  to  all  banks  out  of  the  State  of 
Massachusetts,  and  to  such  banks  within  the  State  as  a  com- 
mittee of  the  associated  banks  should  think  proper.  The  Suf- 
folk Bank  was  appointed  the  agent  to  carry  the  plan  into  effect. 

The  country  banks  became  greatly  excited  by  this  move- 
ment. They  dubbed  the  associated  banks  the  "  Holy  Alii- 


THE  SUFFOLK  BANK  SYSTEM.  327 

ance "  and  the  Suffolk  the  "  Six-tailed  Bashaw."  Neither 
epithets  nor  protests  availed.  The  run  on  the  resisting 
banks  went  on  remorselessly,  until  they  began  to  come  in 
and  make  the  deposits  required.  The  terms  offered  were 
that  each  country  bank  should  make  a  permanent  deposit 
with  the  Suffolk  of  two  thousand  dollars  and 
ProcesJCm&  upwards,  according  to  the  amount  of  its  capital, 
and  such  additional  sum  as  might  be  necessary 
to  redeem  all  of  its  notes  that  should  come  to  Boston.  From 
banks  which  complied  with  these  conditions  the  Suffolk 
offered  to  receive  at  par  the  notes  of  any  New  England  bank 
in  good  standing.  Thus  the  Suffolk  became,  by  degrees,  a 
clearing  house  for  the  notes  of  all  New  England  banks, 
balancing  them  against  each  other  every  day.  When  the 
notes  were  sorted  and  redeemed  they  were  placed  in  pack- 
ages and  held  subject  to  the  order  of  the  issuing  bank. 

In  1845  tne  State  of  Massachusetts  passed  a  law  provid- 
ing that  no  bank  should  pay  over  its  counter  any  notes  but 
its  own,  and  this  law  remained  in  force  until  the  national 
banking  system  superseded  the  Suffolk  and  all  other  systems. 
As  no  bank  could  pay  out  the  notes  of  any  other  bank  it 
was  compelled  to  send  those  which  it  took  on  deposit  to  the 
Suffolk  at  once  for  redemption.  But  would  it  not  have  done 
so,  even  without  the  law  ?  'Each  bank  desires  to  keep  its 
own  notes  in  circulation.  To  do  this  it  is  impelled  to  clear 
the  field  of  all  other  notes.  Moreover,  as  each  bank  was 
under  the  necessity  of  keeping  a  balance  to  its  credit  in  Bos- 
ton and  as  the  notes  of  the  other  banks  were  available  for 
this  purpose,  it  would  seem  as  though  sufficient  motives  ex- 
isted for  sending  such  notes  home  even  without  the  law. 

One  good  effect,  however,  was  that  it  enforced  the  idea 
that  everything  paid  over  a  bank's  counter  must  be  the  equiv- 
alent of  specie.  The  whole  Suffolk  system  was  bottomed  on 
this  principle,  and  the  battle  which  it  started  was  fought  in 


328  REPRESENTATIVE  MONEY. 

order  to  enforce  it.    A  slovenly  idea  had  pervaded  the  whole 
country  that  specie  redemption   was  good  in  theory,  but  bad 

in  practice.     This  conception  was  only  slowly 
folkSystemSUf"   uProoted>    first   in   New   England,    afterwards 

in  New  York,  and  later  in  Louisiana  and 
in  some  other  spots,  but  it  held  the  ground  over  the  larger 
part  of  the  country  until  the  civil  war,  as  will  be  shown  later. 
Mr.  D.  R.  Whitney,  in  his  history  of  the  Suffolk  Bank  says  : 
"  It  was  the  underlying  principle  of  the  Suffolk  Bank 
system,  that  any  bank  issuing  circulation  should  keep  itself 
at  all  times  in  a  condition  to  be  able  to  redeem  it ;  that  it 
should  measure  the  amount  by  its  ability  so  to  do ;  and  that 
the  exercise  at  any  time  of  the  right  to  demand  specie  of  a 
bank  for  its  bills  was  something  of  which  the  issuing  bank 
had  no  right  to  complain." 

Nevertheless,  there  were  some  complaining  banks  all  the 
time;  but  after  the  system  had  been  fairly  established,  these 
were  only  a  small  minority.  The  panic  of  1837  caused  a 
general  suspension  of  specie  payments.  When  the  time 
came  for  a  general  resumption,  the  question  of  renewing  the 
Suffolk  system  was  open  to  debate.  The  banks  of  Massa- 
chusetts, New  Hampshire,  Vermont,  and  Connecticut  voted 

at   once    to  sustain  it.     Those  of  Maine  and 

succe^^  Rhode  Island  came  in  soon  afterwards.  The 
latter  could  not  have  gained  more  than  a 
neighborhood  circulation  if  they  had  stayed  out.  There  was 
a  good  deal  of  squirming  in  the  State  of  Maine,  where  the 
idea  prevailed  that  bankers  ought  to  be  paid  something  for 
being  in  the  backwoods,  and  difficult  of  access;  i.e.,  that 
they  ought  to  be  able  to  circulate  their  notes  without  re- 
deeming them.  The  Veazie  Bank  of  Bangor  —  the  same 
which  afterwards  brought  suit  to  test  the  constitutionality  of 
the  act  of  Congress  taxing  the  notes  of  State  banks  — •  pro- 
cured the  passage  of  a  law  by  the  State  Legislature  to  delay 


THE  SUFFOLK  BANK  SYSTEM.  329 

for  a  few  days  the  collection  of  specie  for  bank  notes,  in 
order  to  annoy  the  Suffolk  and  to  bring  the  system  into  dis- 
repute. 

The  number  of  banks  embraced  in  the  Suffolk  system  in 
1857,  was  504.  These  were  chartered  by  the  legislatures 
of  six  States  at  different  times  during  half  a  century.  Ninety 
new  banks  were  chartered  in  a  slap-dash  way  between  1831 
and  1833.  "Many  of  these,"  says  Mr.  Whitney,  "were 
established  with  little  or  no  capital,  the  specie  which  the  law 
required  them  to  have  being  borrowed  one  day  and  replaced 
with  stock  notes  the  next." 

Under  such  circumstances  the  Suffolk  took  upon  itself  the 
office  of  a  Comptroller  of  the  Currency.  It  did  not  admit  a 
new  bank  to  the  fellowship  of  the  system  merely  because  it 
had  procured  a  charter,  perhaps  by  favoritism,  perhaps  by 
bribery.  It  first  satisfied  itself  that  the  shareholders  were 
men  of  good  character  and  that  the  institution  had  been 
started  in  good  faith.  It  took  the  same  steps  which  the 
National  Banking  Law  requires  the  Comp- 

tr°iier  to  take> and  {t  heid  the  p°wer' as  the 

Comptroller  does,  to  refuse  the  privileges  of 
the  system  to  any  bank,  without  assigning  any  reason  except 
that  it  was  not  satisfied  with  the  looks  of  the  new  candidate. 
Of  course,  the  Suffolk  could  not  prevent  the  newcomer  from 
issuing  notes,  but  it  could  withhold  its  passport  and  thus 
prevent  it  from  getting  any  circulation,  except  a  small  local 
one.  It  should  be  added  that  it  was  not  incumbent  on  the 
Suffolk  bank  to  take  these  precautions,  not  even  for  self- 
protection,  since  it  required  a  preexisting  deposit  for  the  re- 
demption of  notes,  and  never  pledged  itself  to  advance  a 
cent  to  any  bank  for  this  purpose.  Whenever  it  made  ad- 
vances, it  did  so  on  the  same  terms  and  conditions  as 
the  discount  of  other  commercial  paper.  The  precautions 
which  it  took  in  admitting  newcomers  were  taken  for  the 


330  REPRESENTATIVE  MONEY. 

credit  and  good  name  of  the  system  and  of  New  England 
banking. 

The  punishment  which  the  Suffolk  was  able  to  inflict  was 
shown  by  an  incident  related  by  Mr.  Whitney.  In  1852  the 
Bank  of  South  Royalston,  Vermont,  refused  to  comply  with 
some  customary  regulation  and  withdrew  from  the  system. 
The  Suffolk  sent  home  $10,000  of  its  notes  for  redemption. 
Some  charge  was  trumped  up  against  the  messenger  and  he 
was  put  under  arrest,  payment  being  delayed  in  this  way. 
The  messenger  was  soon  released  and  the  Suffolk  then  gave 
notice  that  it  would  receive  no  more  notes  of  the  South 
Royalston  Bank.  The  latter  would  have  been  discredited 
and  ruined  had  not  the  other  banks  of  Vermont  interceded 
and  prevailed  on  the  Suffolk  to  reinstate  it. 

There  were  some  disastrous  bank  failures  in  New  England 
during  the  Suffolk  regime.  The  year  1837  was  the  most 
trying  one  to  banks,  and  to  business  generally, 
Panic  of  1837.  that  the  country  has  ever  known.  All  the 
Massachusetts  banks  suspended  specie  pay- 
ments for  one  year,  and,  of  course,  the  rotten  ones  did  not 
resume  when  the  sound  ones  did,  in  1838.  The  rotten  ones 
were  eleven  in  number.  Their  outstanding  circulation  was 
$520,627;  their  assets  paid  $280,575  of  the  notes,  leaving  a 
deficiency  as  regards  circulation  of  $240,052,  but  at  this  time 
the  noteholders  did  not  have  a  first  lien  on  the  assets.  The 
total  number  of  banks  in  the  State  then  was  119  and  their 
circulation  $9, 400,000. 1 

The  Suffolk  made  some  losses  in  consequence  of  advances 
made  by  it  to  the  failing  concerns,  but  these  did  not  prevent 
it  from  declaring  dividends  at  the  average  rate  of  1 1  ^  per 
cent  per  annum  from  1818  to  1864,  when  it  changed  itself 
into  a  National  Bank.  The  losses  which  it  incurred  from 
counterfeits  and  alterations  in  notes  were  surprisingly  small. 

1  Reports  of  Massachusetts  Bank  Commissioners,  1838-1842. 


THE  SUFFOLK  BANK  SYSTEM.  331 

From  1836  to  1846  the  losses  by  counterfeit  notes  were  only 
$1107,  from  alterations  $766,  and  from  counterfeit  signatures 

on  genuine  notes  $82,  although  the  redemp- 
Small  Losses.  tions  at  this  time  exceeded  $100,000,000  per 

year.  It  is  an  interesting  fact  that  before  the 
day  of  railroads  the  exchanges  of  bank  notes  between  Boston 
and  Providence  were  made  in  a  canvas  bag,  which  was  car- 
ried in  the  boot  of  a  stage  coach  without  other  guard  than 
the  driver,  and  that  it  was  never  molested,  although  on  one 
occasion  it  was  delivered  by  the  porter  of  the  Suffolk  Bank 
to  a  thief  who  passed  himself  off  as  the  stage  driver's  assist- 
ant. It  was  afterwards  recovered. 

The  Suffolk  system  presents  the  fairest  example  of  the 
workings  of  the  "banking  principle"  that  this  country  affords. 

This  is  a  term  used  in  contra-distinction  to  the 
Principle8"  "currency  principle"  which  assumes  that  a 

certain  amount  of  paper  notes  will  be  wanted 
by  the  public  at  all  times  and  will  never  be  presented  for  re- 
demption, which  amount  the  government  will  furnish  either 
directly,  or  through  an  agency,  like  the  Bank  of  England  for 
example.  All  notes  wanted  over  and  above  this  fixed  sum 

must  be   "bought"   with  gold,  i.e.,  the  bank 

must  issue  its  £5  note  for  every  five  sovereigns 

offered  to  it,  or  for  gold  bullion  of  the  value  of 
five  sovereigns.  The  banking  principle  was  so  perfectly 
illustrated  by  the  Suffolk  system  that  any  other  description 
of  it  would  be  superfluous.  Any  person  engaged  in  a  legiti- 
mate trade,  in  any  part  of  New  England,  could  exchange  his 
promissory  note,  running  sixty  or  ninety  days,  for  the  notes  of 
a  bank  payable  on  demand,  with  which  he  could  pay  the 
wages  of  his  employees  or  buy  the  materials  of  his  industry 
in  any  part  of  the  United  States  or  Canada.  The  notes 
would  float  a  certain  length  of  time,  and  finally  turn  up  at 
the  Suffolk  Bank,  where  they  were  redeemed,  not  necessarily 


332  REPRESENTATIVE  MONEY. 

with  gold,  not  generally  with  gold,  for  although  any  note- 
holder could  have  gold  if  he  wanted  it,  gold  was  seldom 
asked  for.  They  were  redeemed  with  the  proceeds  of  the 
bank's  bills  receivable.  The  man  whose  promissory  note  the 
bank  had  discounted,  and  by  means  of  which  it  had  put  its 
own  notes  in  circulation,  had  by  this  time  sold  his  products. 
If  he  had  sold  them  in  Boston,  his  draft  on  the  Boston 
merchant  would  pay  his  note  at  the  local  bank,  and  this 
would  enable  the  latter  to  keep  its  balance  good  at  the  Suf- 
folk. If  he  had  sold  them  in  New  York  or  Chicago,  he 
would  get  his  pay  in  a  draft  on  Boston  which  would  answer 
the  same  end.  If  he  had  sold  them  at  home  and  taken  his 
pay  in  New  England  bank  notes,  the  local  bank  could  use 
these  to  keep  its  balance  good  at  the  Suffolk.  New  England 
trade  was  carried  on  by  an  endless  chain  of  offsets  and  book 
balances  at  the  Suffolk  Bank.  All  seasons  and  all  years  were 
alike  to  it,  except  that  its  business  was  continually  on  the  in- 
crease, so  that  while  two  clerks  could  do  the  work  in  the  as- 
sorting department  in  1824,  seventy  were  necessary  in  the 
year  1855,  the  redemptions  reaching  $400,000,000  per  annum. 
All  this  work  was  done  with  the  minimum  amount  of  specie. 

It  was  not  until  1858  that  the  State  of  Massa- 
specie  Reserve,  chusetts  established  a  legal  reserve  of  specie 

against  both  deposits  and  circulation.  This 
was  done  in  consequence  of  the  panic  of  1857;  the  reserve 
was  fixed  at  15  per  cent,  but  country  banks  might  count 
their  balances  in  Boston  banks,  payable  on  demand,  as 
specie.  Prior  to  the  passage  of  this  law  the  specie  reserve 
of  the  State  had  been  extremely  variable,  ranging  from  44 
per  cent  in  1843,  to  7^  per  cent  in  1851.  There  was  a 
heated  controversy  over  the  passage  of  this  law.  The  bank- 
ers were  generally  opposed  to  it  on  the  ground  that  it  was 
unnecessary  meddling,  but  public  opinion  sustained  it.  After 
the  passage  of  the  law,  the  specie  reserve  rose  considerably 


BANKING  DEVELOPMENT  IN  NEW  YORK.          333 

above  the  legal  requirement  and  afterwards  oscillated  around 
it,  being  sometimes  a  little  more,  and  sometimes  a  little  less 
than  15  per  cent.  This  law,  of  course,  did  not  touch  the 
other  New  England  States  whose  banks  were  integral  parts 
of  the  Suffolk  system.  In  1859,  Maine,  Rhode  Island,  and 
Connecticut  each  had  10  per  cent  of  specie  as  against  circu- 
lation and  deposits,  New  Hampshire  7^  per  cent  and  Ver- 
mont only  6  per  cent. 

About  the  year  1855  a  movement  was  started  among  the 
country  banks  to  establish  a  bank  of  their  own  in  Boston  to 
do  the  work  that  had  been  hitherto  done  by  the  Suffolk,  in 

order  to  reap   the    profits    of  the    operation. 

This  was  the  Bank  of  Mutual  Redemption.     It 


did  not  get  fairly  started  until  1858.  It  di- 
vided the  business  with  the  Suffolk,  but  the  latter  continued 
to  redeem  country  bank  notes  more  or  less  till  1866.  The 
National  Banking  system  had  then  gone  into  operation.  By 
making  each  bank  receive  the  notes  of  every  other  bank  at 
par  it  superseded  the  old  system,  and  accordingly  the  Suf- 
folk became  an  ordinary  commercial  bank  and  remains  such 
to  this  day.1 

CHAPTER   X. 
BANKING  DEVELOPMENT  IN  NEW  YORK. 

NEW  YORK  has  made  two  contributions  to  banking  science 
of  the  first  importance,  viz.:  (i)  The  Safety  Fund  system, 
or  mutual  insurance  of  circulating  notes.  (2)  The  Free 
Bank  and  Bond  Deposit  system  for  securing  circulating  notes. 

During  the  first  half-century  banking  in  New  York  was 
an  integral  part  of  the  spoils  of  politics.  Federalists  would 


1  Since  these  pages  were  written  an  admirable  monograph  on  New 
England  Bank  Currency,  by  L.  Carroll  Root,  has  been  issued  as  a  tract 
by  the  Sound  Currency  Committee  of  the  Reform  Club,  New  York. 


334  REPRESENTATIVE  MONEY. 

grant  no  charters  to  Republicans,  or  Republicans  to  Federal- 
ists. After  a  few  banks  had  been  established  the  ins  joined 
hands  to  prevent  the  outs  from  getting  charters,  regardless 
of  politics.  The  common-law  rights  of  banking  had  not  yet 
been  circumscribed,  but  people  who  exercised  these  rights 
were  subject  to  unlimited  liability.  The  State  was  growing 
rapidly,  and  more  banks  were  needed. 

Banks  and  Charters  were  applied  for  and  refused.     The 

the  "  Spoils 

System."  applicants  then  began  business  on  the  com- 

mon-law plan.  At  the  instigation  of  the 
favored  ones  the  politicians  passed  a  law  to  suppress  all  un- 
chartered  banks.  The  latter  put  money  in  their  purses, 
went  to  Albany  and  bribed  the  Legislature.  This  was  done 
so  often,  and  the  scandal  became  so  great  that  a  political 
upheaval  was  the  consequence.  It  led  to  the  Free  Bank 
system  of  1838.  Politics  and  patronage,  and  monopoly  de- 
pendent upon  politics  and  patronage,  form  the  key  to  bank- 
ing in  the  State.  Hammond's  "  History  of  Political  Parties 
in  the  State  of  New  York  "  furnishes  the  best  account  of 
these  intrigues. 

In  March,  1784,  Alexander  Hamilton  wrote  to  J.  B. 
Church  on  the  subject  of  a  Land  Bank  scheme  fathered  by 
Chancellor  Livingston.  According  to  this  project,  the  sub- 
scribers were  to  pay  one-third  of  the  capital  in  cash  and  give 
land  security  for  the  other  two-thirds.  Hamilton  used  the 
same  arguments  against  it  that  he  used  against  land  bank- 
ing in  his  subsequent  report  on  the  Bank  of  the  United 
States.  He  dissuaded  several  city  merchants,  who  had  looked 
favorably  on  the  project,  from  going  into  it,  and  they  then 
turned  their  attention  to  a  plan  for  a  "  money 

York  °f  NCW        bank  "  and  asked  him  to  draw  UP  the  articles 

of  association   for    it,    which    he   did.      This 

was  the  Bank  of  New  York.     It  began  business  without  a 

charter  June  9,  1784,  and  issued  a  notice  saying  that  no 


BANKING  DEVELOPMENT  IN  NEW  YORK.          335 

paper  would  be  discounted  having  more  than  30  days  to 
run,  and  that  no  note  or  bill  would  be  discounted  to  pay  a 
former  one,  nor  would  overdrafts  be  allowed.  These  rules 
made  the  bank  unpopular  among  the  class  of  people  who 
were  not  likely  to  do  much  business  with  it,  but  it  brought 
a  goodly  lot  of  depositors  and  the  business  was  prosperous 
from  the  start.  About  this  time  the  State  began  to  issue 
post-revolutionary  bills  of  credit.  The  bank  refused  to  re- 
ceive them  except  as  special  deposits.  Accordingly  the 
bank's  customers  generally  kept  two  accounts,  one  for  paper 
and  one  for  specie,  and  a  notice  was  posted  that  discounts 
in  paper  would  be  made  on  Tuesdays  and  in  specie  on 
Thursdays. 

A  petition  for  a  charter  was  presented  to  the  Legislature 
in  1789  in  order  to  limit  the  liability  of  the  shareholders, 
but  it  was  not  granted  till  1791.  At  that  time  its  capital 
was  $318,250,  and  it  had  circulating  notes  outstanding 
$181,254.  It  issued  both  post  notes  and  demand  notes. 
Post  notes,  as  the  name  implies,  are  bank  notes  redeemable 
at  any  time  after  a  future  fixed  date.  They  were  extensively 
employed  in  all  parts  of  the  country  in  the  first  half  of  the 
present  century. 

The  charter  fixed  the  capital  at  $900,000  and  authorized 

the  State  to  become  a  subscriber  for  $50,000   additional. 

The  debts  of  the  bank  (over  and  above  deposits)  could  not 

exceed  three  times  the  capital  actually  paid 

Charter  of  I79i.    in,  and  it  was  not  allowed  to  pay  its  debts  in 

bills  of  credit  of  the  State.    It  was  not  allowed 

to  hold  land  except  sufficient  for  the  accommodation  of  its 

business,  or  such  as  might  be  mortgaged  to  it  bona  fide,  and 

it  was  not  allowed  to  trade  in  goods  or  stocks. 

After  Hamilton  became  Secretary  of  the  Treasury  he  con- 
tinued to  take  a  fatherly  interest  in  the  bank.  It  held  the 
public  deposits  at  New  York  prior  to  the  establishment  of 


336  REPRESENTATIVE  MONEY. 

the  Bank  of  the  United  States  and  for  some  time  after. 
Hamilton  wrote  to  Wm.  Seton,  the  cashier,  saying  that  ulti- 
mately he  should  have  to  deposit  the  public  funds  in  the 
branch  bank,  but  that  he  should  not  act  precipitately.  In 
January,  1791,  a  new  bank  was  projected  in  New  York, 
called  the  Million  Bank.  Hamilton  considered  it  a  grace- 
less speculation.  In  a  letter  to  Seton  he  called  it  "the 
newly  engendered  monster."  In  another  letter  to  Seton 
written  early  in  1791  he  said  :  "  I  consider  the  public  inter- 
est as  materially  involved  in  aiding  a  valuable  institution 
like  yours  to  withstand  the  attacks  of  frantic, 

anc*'  *  ^ear'  *n  to°  manv  instances  unprincipled 

gamblers.  Adieu.  Heaven  take  care  of  good 
men  and  good  views."  One  cannot  help  asking  whether  he 
was  thinking  of  Burr  when  he  wrote  those  lines.  Both 
Hamilton  and  Burr  were  stockholders  in  the  Bank  of  New 
York,  and  Talleyrand  was  one  of  its  depositors.  Some  of 
Talleyrand's  checks  are  still  preserved.1 

The  Bank  of  New  York  was  controlled  by  Federalists. 
The  anti-Federalists  knew  that  the  Legislature  would  not 
grant  a  charter  to  them.  Burr  conceived  the  idea  of  procur- 
ing one  by  stealth.  Accordingly  a  petition  was  presented 
for  a  charter  for  a  company  with  a  capital  of  $2,000,000  to 
supply  New  York  City  with  pure  water.  In  it  was  a  clause 
authorizing  the  company  to  use  any  surplus  of  capital,  over 
and  above  the  amount  needed  for  the  water  works,  in  any 

moneyed  transactions  not  inconsistent  with 
Burr  and  the  the  constitution  and  laws  of  the  State  or  of 
Company.  tne  United  States.  The  city  had  recently 

been  scourged  with  yellow  fever,  the  ravages 
of  which  were  attributed  in  part  to  the  bad  water.  The 
charter  was  granted  and  the  company  applied  one-half  of  its 

1  History  of  the  Bank  of  New  York,  1784-1884,  by  Henry  W. 
Domett. 


BANKING  DEVELOPMENT  IN  NEW  YORK.          337 

capital  to  water  works  and  the  other  half  to  the  banking 
business.  The  Council  of  Revision  (of  which  John  Jay  was 
president),  whose  approval  was  necessary,  did  not  suspect 
that  banking  powers  were  concealed  in  the  charter.  This 
was  the  Manhattan  Company.  It  ceased  to  be  a  water  com- 
pany in  1840,  but  it  has  never  ceased  to  be  a  bank. 

When  the  Republicans  came  into  power  they  refused  all 
applications  for  bank  charters  to  Federalists,  and  the  exist- 
ing banks,  of  which  there  were  six  in  the  State  prior  to  1804, 
made  common  cause  to  prevent  any  new  ones  from  entering 
the  field.     In  that  year  the  Merchants'  Bank 

B^khants'       of  New  York  city'  which  was  already  in 

operation  under  the  common  law,  applied  for 
a  charter.  The  Legislature  not  only  refused  it,  but  passed 
a  law  prohibiting  all  unincorporated  companies  from  doing 
a  banking  business,  and  declaring  all  promissory  notes  of 
such  companies  and  all  obligations  for  the  payment  of 
money  to  them  absolutely  void.  In  1805  this  bank  made 
another  application  for  a  charter.  The  Republican  news- 
papers opposed  it  on  the  ground  that  the  applicants  were 

Federalists.     The  bank  then  bribed  the  Legis- 

lature  and  Sot  the  bil1  through.  There  was 
great  excitement  over  it  in  the  Senate.  Judge 
Purdy  and  Judge  Taylor  came  to  blows  in  open  session  and 
Taylor  knocked  Purdy  down.  Judge  Spencer  in  the  Council 
of  Revision  protested  against  the  bill  on  the  ground  that  no 
more  banks  were  needed  in  New  York,  and  because  the  bill 
had  been  passed  by  corrupt  means.  Nevertheless  a  major- 
ity of  the  council  approved  it.  At  the  next  nominating  con- 
vention of  the  Southern  District  resolutions  were  passed 
reproaching  the  Republicans  in  other  parts  of  the  State  "  for 
granting  a  charter  to  our  political  enemies." 

In   1811    a  company  was  formed  to  create  the  Bank  of 
America  with  a  capital  of  six  millions.     Governor  Tompkins 


338  REPRESENTATIVE  MONEY. 

in  his  annual  message  took  ground  against  any  more  bank 
charters  or  any  considerable  increase  of  bank  capital.  The 
bank  offered  an  extravagant  bonus  for  a  charter  :  $600,000 
to  the  State,  besides  a  loan  of  $1,000,000  at 
America  5  Per  cent  ^or  constructing  canals.  On  a  pre- 

liminary vote  in  the  Assembly  the  bank  had 
52  supporters  against  49  opponents.  Hereupon  disclosures 
were  made  of  attempts  to  bribe  members  to  support  the  bill, 
but  these  disclosures,  so  far  from  preventing  its  passage,  had 
the  contrary  effect.  The  bill  passed  by  58  to  39.  In  the 
Senate  a  motion  was  made  to  reject  the  bill.  It  failed  by 
15  to  13.  Thereupon  the  Governor  prorogued  the  Legis- 
lature till  the  2ist  of  May,  assigning  as  a  reason  that  the 
friends  of  the  bank  had  used  corrupt  means  to  procure  a 
charter.  When  the  Legislature  reassembled  the  Senate 
passed  the  bill  by  17  to  13. 

In  1821  the  good  people  of  the  State  sought  to  put  an  end 
to  these  scandals  by  a  clause  in  the  constitution  of  that  year 
requiring  a  two-thirds  vote  of  both  branches  of  the  Legisla- 
ture to  pass  a  bank  charter,  but  the  only  effect,  says  Ham- 
mond, was  "to  increase  the  evil  by  rendering  necessary  a 
more  extended  system  of  corruption." 

In  the  session  of  1824-1825  several  bank  charters  were 
granted,  that  of  the  Chemical  Manufacturing  Co.  (now  the 
Chemical  Bank)  among  them.  After  they 
More  Bribery.  were  passed  a  charge  was  made  that  corrupt 
means  had  been  employed  and  an  investiga- 
tion was  ordered.  "  The  evidence  given  before  the  commit- 
tee," says  Hammond,  "  afforded  a  most  disgusting  picture 
of  the  depravity  of  members  of  the  Legislature  and  indeed  I 
might  say  of  the  degradation  of  human  nature  itself."  The 
politicians  and  the  existing  banks  had  attempted  to  put  a 
hoop  around  the  banking  business  and  to  prevent  its  growth. 
In  order  to  accomplish  this  more  effectually  they  had  passed 


THE  SAFETY  FUND  SYSTEM.  339 

a  new  restraining  law  in  1818  much  more  severe  in  its  terms 
than  that  of  1804.  It  prohibited  all  persons  and  corpora- 
tions from  receiving  deposits  or  discounting  notes  except 
those  expressly  authorized  by  law  to  do  so.  The  banking 
business,  which  must  needs  grow  with  the  growth  of  the 
State,  followed  the  line  of  least  resistance.  The  frailest 
barrier  was  the  virtue  of  the  Legislature.  "That  such  a 
heartless  controversy,"  says  Hammond,  "  should  repeatedly 

have  convulsed  and  broken  up  great  political 
its  Cause.  parties,  that  it  should  in  its  progress  have 

blasted  the  prospects  and  destroyed  the  use- 
fulness of  so  many  talented  and  in  other  respects  worthy 
citizens  and  finally  that  it  should  have  marred  the  character 
for  purity  of  our  State  legislature  and  fixed  an  indelible  and 
enduring  stain  upon  the  reputation  of  the  Empire  State,  is 
deeply  to  be  deplored." 

Notwithstanding  these  bad  auspices,  bank  failures  were 
extremely  rare.  The  first  one  occurred  in  1819,  at  which 
time  there  were  33  banks  in  operation  with  an  incorporated 
capital  of  $2  5,1 90,000. *  Down  to  1830  there  were  43  banks 
and  8  failures. 


CHAPTER   XI. 
THE   SAFETY  FUND   SYSTEM. 

ON  the  24th  of  January,  1829,  Joshua  Forman,  of  Syra- 
cuse, addressed  a  letter  to  Martin  Van  Buren,  Governor  of 

the  State,  proposing  a  plan  for  the  mutual  in- 
Joshua  Forman.  surance  of  bank  notes  —  the  plan  now  known 

as  the  Safety  Fund  system.  Judge  Forman's 
paper  is  one  of  the  soundest  and  ablest  discussions  of  a 

1  New  York  Bank  Currency,  by  L.  Carroll  Root.  Tract  of  the  Sound 
Currency  Committee  of  the  Reform  Club,  New  York,  1895. 


340  REPRESENTATIVE  MONEY. 

financial  question  that  can  be  found  in  the  literature  of 
money.  On  one  branch  of  the  subject  he  was  clearly  wrong, 
but  it  did  not  affect  the  main  purpose  of  his  paper.  He 
thought  that  banks  should  be  compelled  to  invest  their  en- 
tire capital  in  public  stocks,  or  in  bonds  and  mortgages  on 
long  time,  using  only  their  deposits  for  the  discount  of  com- 
mercial paper.  In  other  words  the  entire  fund  which  serves 
as  a  guarantee  to  the  depositors  should  be  put  in  a  place 
where  it  could  not  be  easily  reached.  His  argument  was 
that  if  invested  in  the  way  proposed  it  would  always  be  safe. 
Such  a  fund  would  be  terribly  safe.  The  bank  might  easily 
fail,  and  half  its  customers  might  fail  in  consequence,  while 
waiting  for  this  very  money. 

Aside  from  this  eccentricity  Mr.  Forman's  suggestion  was 
that  each  bank  should  be  required  to  contribute  annually  to 
a  common  fund  for  the  payment  of  the  debts  of  such  banks 
as  should  fail  and  that  this  contribution  should  continue  till 
it  should  reach  half  a  million  or  a  million  dollars,  and  be 
kept  up  to  that  sum  by  further  contributions  when  needful. 
He  told  how  this  idea  had  been  suggested  to  him.  "The 
propriety  of  making  the  banks  liable  for  each 
Merchants  other,"  he  said,  "was  suggested  by  the  regula- 

tions of  the  Hong  merchants  in  Canton,  where 
a  number  of  men,  each  separately,  have,  by  a  grant  of  the 
government,  the  exclusive  right  of  trading  with  foreigners, 
and  are  all  made  liable  for  the  debts  of  each  in  case  of  fail- 
ure. The  case  of  our  banks  is  very  similar;  they  enjoy  in 
common  the  exclusive  right  of  making  a  paper  currency  for 
the  people  of  the  State,  and  by  the  same  rule  should  in  com- 
mon be  answerable  for  that  paper.  This  abstractly  just 
principle,  which  has  stood  the  test  of  experience  for  seventy 
years,  and  under  which  the  bond  of  a  Hong  merchant  has 
acquired  a  credit  over  the  whole  world  not  exceeded  by  that 
of  any  other  security,  modified  and  adapted  to  the  milder 


THE  SAFETY  FUND  SYSTEM. 


341 


Governor  Van 
Buren's  Action. 


features  of  our  Republican  institutions,  constitutes  the  basis 
of  the  system." 

Governor  Van  Buren  referred  Mr.  Forman's  plan  to  Thos. 
W.  Olcott,  cashier  of  the  Mechanics  and  Farmers'  Bank,  of 
Albany.  "Mr.  Olcott,"  says  Hammond,  "at  first  view  of 
the  scheme  of  Mr.  Forman,  discovered  that  cautious  and 
careful  banking  companies  never  would  consent  to  make 
themselves  liable  for  the  performance  of  con- 
tracts of  the  various  banks  scattered  over  this 
great  State  from  Long  Island  to  Lake  Erie; 
and  yet  he  was  struck  with  the  great  benefits  which  would 
result  to  the  public  by  the  adoption  of  some  plan  which 
would  render  it  the  interest  of  each  bank  to  sustain  the 
credit  of  all  other  banks ;  and  it  was  to  his  skill  and  sagacity 
aided  by  his  experience  and  influence,  in  connection  with 
the  personal  influence  among  the  members  of  the  Legisla- 
ture of  Mr.  Benjamin  Knower  and  a  few  other  intelligent 
and  patriotic  bankers,  that  the  New  York  public  are  in- 
debted for  the  most  perfect  system  of  chartered  banking 
which  ever  was  invented."  J 

The  law  provided  that  every  bank  whose  charter  should 
be  granted  or  extended  thereafter,  should  pay  into  the 
"Bank  Fund"  one-half  per  cent  of  its  paid  up  capital  each 
year,  until  the  contributions  should  be  equal 

to  3  Per  cent  of  its  caPital  stock-  This  fund 
was  to  be  applied  solely  to  the  payment  of 
"the  debts"  of  failed  banks  belonging  to  the  system.  The 
fund  was  not  to  be  used,  however,  until  the  assets  of  the 
failed  bank  had  been  exhausted  and  the  deficiency  de- 
termined by  judicial  proceedings.  Whenever  the  fund 
should  be  reduced  in  this  way  the  comptroller  should  call  on 
the  banks  for  fresh  contributions,  at  the  same  rate,  as  to 
time  and  amount,  as  the  original  ones.  The  same  act  pro- 

1  Hammond,  ii,  298-299. 


342  REPRESENTATIVE  MONEY. 

vided  for  the  appointment  of  three  commissioners  to  examine 
all  the  banks  three  times  each  year,  or  oftener  if  required  to 
do  so.  Any  three  banks  might  call  for  a  special  examina- 
tion of  any  bank  in  the  system. 

The  experience  of  the  State  under  the  Safety  Fund  system 
has  been  collected  and  arranged  in  a  systematic  and  thorough 
way  by  John  J.  Knox  l  and  still  more  so  by  Mr.  Root  in  the 
pamphlet  already  referred  to.  I  am  indebted  to  the  latter 
for  the  following  items  : 

In  1837  three  safety  fund  banks,  all  in  the  City  of  Buffalo, 
were  reported  to  be  in  difficulties.  The  Legislature  passed 
a  law  authorizing  the  Comptroller  to  apply  two-thirds  of  the 
Bank  Fund  to  the  immediate  redemption  of 

their  notes'     This  was  done'     There  was  no 
depreciation  of  the  notes  and  the  Bank  Fund 

was  made  good  out  of  the  assets  of  the  failed  banks.  Two 
other  banks  failed  soon  afterwards  and  their  notes  were  paid 
and  the  fund  replenished  in  the  same  way.  There  were  no 
more  failures  till  1840.  During  that  and  the  two  following 
years  eleven  banks  failed.  The  fund  now  had  about  $900,000, 
of  which  $600,000  was  applicable  under  the  law  of  1837  to 
the  immediate  redemption  of  circulating  notes,  the  remainder 
being  reserved  for  depositors.  Those  of  the  first  three  banks 
in  the  order  of  failure  exhausted  this  sum.  The  Bank  Com- 
missioners, in  their  annual  report  for  1841,  said  that  the 
Bank  Fund  was  primarily  designed  for  the  protection  of  note- 
holders, not  depositors  or  general  creditors.  The  fact  that 
the  law  put  all  creditors  on  the  same  level  was  not  understood 
by  the  public  or  by  the  bankers  themselves, 

Prior  Lien6  *     *  and  its  exPediencY  was  called  in  question.     In 

1842   the  law  was  amended  so  that  after  the 

payment  of  all  the  liabilities  charged  against  the  Fund  at 

that  time  the  note-holders  should  have  the  first  lien  on  it. 

1  In  Rhodes'  Journal  of  Banking,  April,  1892. 


THE  SAFETY  FUND  SYSTEM.  343 

In  the  Constitution  of  1846  note-holders  were  made  pre- 
ferred creditors  of  all  failed  banks.  This  valuable  principle 
was  first  adopted  by  the  State  of  Connecticut  in  1831.  It 
was  made  a  feature  of  all  charters  granted  in  that  and  sub- 
sequent years,  in  these  words :  "  In  case  of  the  failure  of 
said  bank,  the  holder  of  the  notes  of  said  bank  or  corpora- 
tion, of  the  denomination  of  $100  and  under,  shall  have  a 
lien  on  all  the  assets  of  said  bank  or  corporation,  both  real 
and  personal,  in  possession,  remainder  and  reversion,  and 
on  all  debts  due  to  said  bank,  and  on  all  claims  in  favor  of 
said  bank,  of  every  nature  whatsoever,  and  on  all  moneys 
and  property  of  every  description  in  the  custody  and  posses- 
sion of  said  bank  at  the  failure  thereof ;  and  that  every  con- 
veyance, assignment  or  transfer  of  any  of  the  property  and 
estate  hereinbefore  specified,  and  in  expectation  of  the  in- 
solvency of  said  bank  or  corporation,  or  with  a  view  to  the 
same,  shall  be  void."  l 

The  reason  why  note-holders  should  be  preferred  creditors 
of  failed  banks  is  that  usually  it  is  not  a  matter  of  choice 
whether  persons  shall  or  shall  not  accept  bank  notes  when 
offered  in  payment.  This  is  especially  true 
Reason  for  this,  of  wage-workers  and  the  poorer  and  more  help- 
less classes  of  the  community,  who  are  liable 
to  lose  situations,  or  favor,  or  patronage,  if  they  object  to 
the  kind  of  money  offered  to  them,  and  who  are  less  able  to 
form  opinions  for  themselves  on  the  soundness  and  standing 
of  particular  banks. 

Unfortunately  the  charges  against  the  Bank  Fund  before 
the  act  of  1842  took  effect  were  sufficient  to  absorb  every- 
thing it  was  likely  to  receive  from  the  one-half  per  cent  an- 
nual contribution.  In  1845  the  State  issued  its  own  stock 
for  $900,000  to  make  prompt  payment  to  the  creditors  of 
the  failed  banks,  taking  a  mortgage  on  the  fund  for  repay- 

1  I  am  indebted  to  Mr.  L.  Carroll  Root  for  this  find. 


344  REPRESENTATIVE  MONEY. 

ment.     It  was  all  reimbursed  out  of  the  fund,  principal  and 

interest.     Moreover,  the  fund  redeemed  a  large  amount  of 

notes  fraudulently  overissued,  a  result  due  to 

overfssues*  the  lack  of  any  svstem  of  registration  by 
public  authority  in  the  original  act.  This 
omission  was  rectified  in  1843,  but  after  the  mischief  had 
been  done.  The  whole  amount  of  payments  into  the  Safety 
Fund  was  $3,104,999,  and  of  payments  out  of  it  to  note- 
holders and  depositors  $2,600,000,  the  remainder  having 
been  paid  as  interest  on  the  State's  advances. 

If  the  people  of  New  York  had  known  at  the  beginning 
all  that  they  knew  at  the  end  of  this  experiment  they  would 
have  made  the  Safety  Fund  liable  only  for  circulating  notes. 
They  would  have  made  the  average  amount  of 
Errors  of  Detail,  the  circulation  of  each  bank,  and  not  its 
capital  stock,  the  basis  of  contributions  to  the 
fund.  That  would  have  necessitated  some  machinery  for 
ascertaining  the  circulation  and  would  probably  have  pre- 
vented overissues.  It  would  also  have  been  more  consonant 
with  justice,  and  would  have  reconciled  the  large  city  banks 
to  the  system. 

By  reason  of  these  errors  of  detail  the  opinion  got  abroad 
that  the  New  York  Safety  Fund  system  was  a  failure.  How 
far  from  the  truth  this  is  we  may  learn  from  the  report  of 
Millard  Fillmore,  Comptroller,  in  1848,  in  which  he  said  : 
"  It  is  therefore  apparent  that  the  Safety  Fund  would  have 
proved  an  ample  indemnity  to  the  bill  holder  had  it  not 
been  applied  to  the  payment  of  other  debts  of  the  banks 
than  those  due  for  circulation."  Mr.  Root  proves  the  truth 
of  Mr.  Fillmore's  statement  by  figures.  "  It  is  plain,"  he 
says,  "  as  the  result  of  calculation  from  experiments  of  36 
years  (1829-1865),  that,  had  the  Safety  Fund  system  —  as 
perfected  prior  to  and  in  the  constitution  of  1846 — been 
left  untouched  as  that  upon  which  New  York  State  bank 


THE  SAFETY  FUND  SYSTEM.  345 

currency  was  based,  not  merely  would  every  dollar  of  cir- 
culation have  been  kept  good,  but  the  total  assessment  to 
keep  the  fund  good  would  have  averaged  less  than  %  per 
cent  on  the  banking  capital,  or  about  ^  per  cent  on  the 
average  circulation  outstanding." 

The  Safety  Fund  system,  apart  from  some  infantile  dis- 
orders, was   a  grand  success,   and  although  it  was  buried 
thirty  years  ago,  at  the  place  of  its  birth,  is  alive  and  in 
high  esteem  in  a  neighboring  country.     It  was 

The  Safety  adopted  in  Canada  in  1800,  in  order  to  secure 

Fund  System 

in  Canada.  tne  prompt  redemption  of  the  notes  of  failed 

banks,  i.e.,  to  avoid  a  discount  on  the  notes 
of  such  banks  pending  liquidation.  Under  the  Canadian 
system,  the  circulating  notes  are  the  first  lien  on  the  assets, 
and  it  is  believed  that  the  assets  will  always  suffice  to  redeem 
the  notes,  but  the  delay  in  converting  them  into  cash,  prior 
to  the  establishment  of  the  Safety  Fund,  had  led  to  a  tempo- 
rary discount  on  such  notes.  There  is  now  in  the  Canadian 
"  Bank  Circulation  Redemption  Fund  "  $1,800,000,  and  it  is 
believed  to  be  sufficient  to  meet  all  casualties  of  this  kind. 
Under  the  Canadian  law  the  government  is  not  responsible 
for  the  notes  of  failed  banks,  but  such  notes  draw  interest  at 
six  per  cent.  The  maximum  amount  of  the  fund  is  five  per 
cent  of  the  outstanding  circulation  of  all  the  Canadian  banks, 
and  it  must  be  kept  up  to  this  maximum,  the  Minister  of 
Finance  having  power  to  call  on  the  banks  for  additional 
contributions,  when  necessary,  not  exceeding  one  per  cent 
in  any  year.  When  the  assets  of  failed  banks  are  paid  in, 
however,  refunds  may  be  made  to  the  contributing  banks  of 
the  excess  over  five  per  cent. 

During  all  this  time  banking  was  still  a  monopoly.  Bank 
charters  were  granted  only  to  the  friends  and  supporters  of 
the  party  in  power,  and  when  they  were  granted  the  Bank 
Commissioners  parcelled  out  the  right  to  subscribe  for  shares 


346  REPRESENTATIVE  MONEY. 

as  so  much  spoils  and  party  plunder.  Originally  two  of  the 
three  Bank  Commissioners  were  selected  by  the  banks  them- 
selves. The  law  was  subsequently  changed  so 
Spoils!*01  tlCal  as  to  Sive  the  appointment  of  all  of  them 
to  the  Governor  and  Senate.  This  was  done 
for  the  purpose  of  controlling  the  distribution  of  bank  shares 
party-wise.  Their  report  for  1837  savs  :  "The  distribution 
of  bank  stocks  created  at  the  last  session  has  in  very  few,  if 
any,  instances  been  productive  of  anything  like  general 
satisfaction.  In  most  instances  its  fruits  have  been  violent 
contention  and  bitter  personal  animosities,  corrupting  to  the 
public  mind  and  destructive  of  the  peace  and  harmony  of 
society." 

These  scandals  and  squabbles  produced  nearly  universal 
disgust  and  led  to  a  revolt  in  the  Democratic  party  in  1835. 
A  faction  sprang  up  calling  themselves  the  Equal  Rights 
party.  They  came  to  be  known  afterwards  as 
The  Locofocos.  the  Locofocos.  They  went,  one  evening,  to  a 
Tammany  Hall  ratification  meeting  in  such 
force  that  they  were  able  to  outvote  the  regulars.  The 
regulars  turned  off  the  gas.  Evidently  the  Equal  Rights 
men  had  received  notice  of  the  designs  of  their  enemies, 
since  they  came  to  the  meeting  provided  with  candles  and 
locofoco  matches  with  which  they  lighted  the  hall  and  con- 
tinued the  struggle.  The  next  day  the  Courier  and  Enquirer 
dubbed  them  the  Locofoco  party,  and  the  name  stuck,  and  be- 
came attached  as  a  term  of  derision  to  Democrats  generally. 
The  Locofocos  did  not  succeed  at  the  first  election,  but 
they  adopted  a  platform  in  which  they  declared  "  hostility  to 
any  and  all  monopolies  by  legislation,  because  they  are  viola- 
tions of  the  equal  rights  of  the  people."  As  they  gained 
strength  they  enlarged  their  plans  and  set  out  to  reform  the 
earth.  They  condemned  paper  money  in  all  its  forms,  and 
they  resolved  that  all  charters  passed  by  preceding  legis- 


THE  SAFETY  FUND  SYSTEM. 


347 


Revolt  against 
Bank  Monopoly. 


latures  might  be  altered  or  repealed  by  their  successors, 
and  ought  to  be  when  necessary  for  the  public  good,  or 
when  required  by  the  majority  of  the  people. 
These  doctrines  were  deemed  much  too  radi- 
cal, and  they  prevented  some  influential  people 
from  giving  the  Locofocos  an  unreserved  support.  Ham- 
mond says  :  "  Perhaps  no  political  party  ever  existed  in  the 
State  which  has  been  the  subject  of  more  severe  animad- 
version and  attack  than  this  party.  All  the  chartered 
moneyed  institutions  and  the  whole  influence  of  associated 
wealth  were  against  them.  The  newspaper  press  of  both 
parties  with  the  single  exception,  I  believe,  of  the  Evening 
Post,  then  conducted  by  those  unshaken  and  indomitable 
Democrats,  William  Leggett  and  William  C.  Bryant,  was 
loud  in  its  denunciations.  The  Evening  Post  did  not  justify 
their  organization  as  a  distinct  party,  but  it  advocated  with 
great  zeal  and  ability  many  of  their  principles." 

As  the  Democratic  party  remained  deaf  to  the  demands 
of  the  Locofocos  the  latter  nominated  some  distinguished 
Whigs  as  candidates  for  Congress  and  the  Legislature  in 
the  city  districts,  in  the  autumn  of  1836,  and  the  Whig  party 
ratified  the  nominations.  The  combination 
Successful.  was  successful.  The  experiment  was  repeated 

in  the  city  election  in  the  spring  of  1837  and 
was  again  successful.  These  successes  prompted  the  Loco- 
focos to  hold  a  State  Convention  in  September,  1837,  at 
which  they  passed  a  resolution  that  "  The  Legislature  shall 
not  charter  or  create  any  corporate  or  artificial  body,  nor 
confer  on  any  individual  or  company  either  exclusive  ad- 
vantages or  special  privileges." 

In  the  election  of  1837  the  anti-bank  men  cast  their  votes 
for  the  Whig  candidates  and  swept  the  State.  Out  of  128 
members  of  the  assembly  they  carried  101,  and  also  6  out 
of  8  senatorial  districts.  This  victory  led  to  the  free  bank- 


348  REPRESENTATIVE  MONEY. 

ing  law  of  1838,  and  after  it  was  passed  the  Locofocos,  as  a 
rebellious  faction  of  the  Democratic  party,  disappeared.1 
Thus  the  uppermost  thought  of  the  Legislature  in  1838  was 
equal  rights  rather  than  banking,  and  its  wits  were  exercised 
to  devise  a  system  which  should  meet  a  political  rather  than 
a  financial  exigency. 


CHAPTER    XII. 

THE  FREE  BANK  SYSTEM. 

THE  first  suggestion  of  the  Free  Bank  system  that  I  have 
met  with  is  contained  in  a  letter  of  the  Rev.  John  McVickar, 
Professor  of  Political  Economy  in  Columbia  College,  dated 
February  17,  1827.  It  is  written  to  an  unnamed  correspond- 
ent, and  is  printed  as  a  pamphlet.2  In  it  he  makes  the  two 

following  suggestions: 

First  Suggestion.       "I.    Banking  to  be  a  free  trade  in  so  far 
that  it  may  be  freely  entered  into  by  individu- 
als or  associations  under  the  provisions  of  a  general  statute. 

"II.  The  amount  of  banking  capital  of  such  individual  or 
association  to  be  freely  fixed,  but  to  be  invested  one-tenth 
at  the  discretion  of  the  bank,  the  remaining  nine-tenths  in 
government  stock,  whereof  the  bank  is  to  receive  the  divi- 
dend, but  the  principal  to  remain  in  pledge  for  the  redemp- 
tion of  its  promissory  notes,  under  such  securities  as  to  place 
the  safety  of  the  public  beyond  doubt  or  risk." 

In  1833  there  was  published  in  London  "The  Principles 
of  Political  Economy,"  by  G.  Poulett  Scrope,  M.P.,  on  page 
424  of  which  occurs  this  paragraph  : 

1  Hammond,  ii,  489-503. 

2  I  am  indebted  to  Professor  Seligman  of  Columbia  College  for  an 
inspection  of  this  pamphlet,  which  is  a  part  of  his  own  extensive  collection 
of  works  on  money  and  banking. 


THE  FREE  BANK  SYSTEM.  349 

"  The  issue  of  paper  money  by  banks  in  the  country,  if 
permitted  at  all,  should  only  be  allowed  on  the  deposit  of 
securities  to  its  full  amount  in  guarantee  of  its  payment." * 

Whether  either  of  these  suggestions  was  present  to  the 
mind  of  Mr.  Abijah  Mann  when  he  brought  his  bank  bill 

before  the  Legislature  of  1838  is  not  known.  -**T 
AWjah  Mann.  This  bill,  as  amended  and  passed,  provided 
that  any  person  or  association  of  persons  might 
receive  from  the  Comptroller  circulating  notes,  and  after 
signing  them  might  issue  them  as  money,  by  first  depositing 
with  him  stocks  of  the  United  States,  of  the  State  of  New 
York,  or  of  any  other  State  approved  by  the  Comptroller, 
made  equal  to  a  five  per  cent  stock  of  the  State  of  New  York, 
or  bonds  and  mortgages  on  improved,  productive,  and  unin- 
cumbered  real  estate,  worth  double  the  amount  of  the  mort- 
gage, exclusive  of  the  buildings  thereon,  and  bearing  interest 
at  not  less  than  six  per  cent  per  annum.  The  banks  might 
deposit  stocks  only,  or  half  stocks  and  half  bonds  and  mort- 
gages, and  the  printed  notes  should  specify  to  which  class 
they  belonged.  In  case  default  should  be  made  in  the  re- 
demption of  any  such  notes  and  such  default  should  continue 
for  ten  days,  the  Comptroller  should  sell  the  securities  and 
apply  the  proceeds  to  the  redemption  of  the  notes.  The 
State  was  not  in  any  way  responsible  for  the 
L£^  ''  payment  of  the  notes  beyond  the  proper  appli- 

cation of  the  securities  to  that  purpose.  The 
persons  or  associations  depositing  the  securities  should  re- 
ceive the  interest  on  them  as  long  as  they  redeemed  their 
notes  on  demand,  unless  in  the  opinion  of  the  Comp- 
troller they  had  depreciated  so  as  to  be  no  longer  adequate 
security. 

1  Mr.  Theodore  Oilman  (in  the  Banker's  Magazine,  February,  1895) 
mentions  two  other  English  writers  (Drummond  and  Joplin),  who 
had  made  similar  suggestions  in  1826  and  1827  respectively. 


350  REPRESENTATIVE  MONEY. 

The  free  banking  law  was  extremely  popular,  133  banks 
being  started  under  it  before  December  i,  1839,  °f  which  76 
were  in  full  operation.1  Experience  under  this  law  was  at 
first  disastrous.  There  were  some  failures  in 
A  Bad  Start.  1840,  among  them  the  bank  of  Tonawanda, 
the  sale  of  whose  securities  realized  only  68 
per  cent  of  the  outstanding  notes.  This  led  to  a  change  of 
the  law  regarding  State  stocks,  which  were  now  restricted,  as 
to  banks  subsequently  established,  to  those  of  New  York. 
The  mortality  of  the  free  banks  was  so  great,  by  failure  or 
voluntary  liquidation,  that  in  1842  only  46  remained  in 
operation.  In  1844  the  Comptroller  reported  that  26  free 
banks  had  failed  up  to  that  date,  and  that  their  circulation 
has  been  redeemed  at  the  average  rate  of  76  cents  on  the 
dollar.  The  banks  still  in  operation  had  securities  deposited 
of  the  nominal  value  of  $3,744,829,  but  valued  by  the  Comp- 
troller at  $2,745,156. 

The  practice  of  issuing  notes  at  interior  towns  and  villages 
by  individuals  residing  in  New  York  City,  or  even  in  other 
States,  was  now  discovered  to  be  prevalent.  A  law  had  been 
passed  in  1840  requiring  that  all  country  banks  should  re- 
deem their  notes  in  New  York  City  or  Albany  at  a  discount 
not  exceeding  one-half  of  one  per  cent.  Under  the  free 
banking  law  a  man  could  issue  notes  in  New  York  City,  but 
dated  at  some  remote  place  in  the  interior,  and  then  redeem 
them  at  a  discount  of  one-half  per  cent  at  their  real  place  of 
issue.  This  was  more  freedom  in  banking  than  had  been 
contemplated.  An  act  was  accordingly  passed  in  1844  pro- 
viding that  nobody  should  transact  business  as  a  banker 
except  at  the  place  of  his  actual  residence.  Banks  established 
for  circulation  only  were  the  subject  of  reproof  and  admo- 
nition in  a  report  made  by  a  Senate  Committee  in  1845.  A 
law  was  passed  in  1848  providing  that  "  all  banking  associa- 

1  Root,  page  17. 


THE  FREE  BANK  SYSTEM.  351 

tions  and  individual  bankers  shall  be  banks  of  deposit  and 

discount  as  well  as  of  circulation,"  but  it  was  evaded.    The 

Comptroller  reported  in  1851  that  many  of  the 

free  banks    were   banks    °f  circulation    alone> 
and  were  established  for  that  purpose  alone  ; 

that  their  notes  were  put  in  circulation  by  agents  in  distant 
cities  and  that  the  banks  which  issued  them  afforded  no 
business  facilities  to  the  community.  They  had  sold  to  the 
public  a  lot  of  State  stocks,  and  bonds  and  mortgages,  in 
such  a  way  that  they  could  draw  the  interest  themselves 
while  the  public,  i.e.,  the  note-holders,  had  paid  for  the  prin- 
cipal ;  and  that  was  the  only  banking  there  was  in  it.  In 
1854  the  Superintendent  of  Banks  said  that  all  the  bonds 
and  mortgages  that  had  been  sold  under  the  provisions  of 
the  free  banking  law  had  not  realized  over  75  per  cent  of 
their  par  value,  and  that  that  form  of  security  could  not  be 
considered  adequate  for  the  prompt  redemption  of  bank  notes. 
Until  1846,  when  the  State  adopted  a  new  constitution, 
the  comparative  results  of  the  Safety  Fund  and  Free  Bank 
systems  had  been  in  favor  of  the  former. 
Results  to  1846.  Comptroller  Flagg,  in  his  report  of  that  year 
said  :  "  In  the  security  of  the  public  under 
each  system,  our  experience  in  the  failure  of  ten  safety 
fund  banks,  and  about  three  times  that  number  of  free 
banks,  proves  that  the  contribution  of  half  of  one  per  cent 
annually  on  the  capital  of  the  safety  fund  banks  has  thus 
far  afforded  as  much  protection  as  the  deposit  with  the 
Comptroller,  by  the  free  banks,  of  a  sum  nominally  equal  to 
all  the  bills  issued  to  them.  It  will  be  seen,  by  reference  to 
a  statement  under  the  head  of  insolvent  free  banks,  that  the 
loss  to  bill-holders,  on  the  supposition  that  all  the  securities 
had  been  stocks  of  this  State  and  bonds  and  mortgages, 
would  have  been  over  16  per  cent,  while  the  actual  loss  has 
been  nearly  39  per  cent." 


352  REPRESENTATIVE  MONEY. 

The  constitution  of  1846,  however,  prohibited  the  granting 
of  any  special  charters  for  banking  purposes.  As  all  the 
safety  fund  banks  were  of  this  kind  this  clause 
tution°nS  X~  was  a  decree  °f  slow  death  to  the  system,  ac- 
cording as  the  existing  charters  expired.  Other 
banking  clauses  in  this  constitution  were  that  after  January  i, 
1850,  stockholders  should  be  individually  responsible  for  an 
amount  equal  to  their  respective  shares  of  stock  in  addition 
to  the  amount  paid  in  (a  very  important  step) ;  that  all  cir- 
culating notes  should  be  registered  by  public  authority  and 
that  ample  security  for  their  redemption  should  be  required; 
that  in  case  of  insolvency  note-holders  should  be  preferred 
creditors,  and  that  the  Legislature  should  have  no  power  to 
pass  any  law  sanctioning  the  suspension  of  specie  payments. 
It  was  provided  also  that  all  future  acts  of  incorporation, 
whether  general  or  special,  might  be  altered  or  repealed  from 
time  to  time.  All  these  provisions  are  distinctly  traceable 
to  the  Locofoco  uprising  of  1836-37. 

Thirty-two  free  banks  failed  up  to  1850,  with  a  circulation 
of  $1,468,243,  which  was  redeemed  at  various  rates  from  par 
down  to  30  cents  on  the  dollar,  the  aggregate  loss  being 
$325,487.  From  1851  to  1861  there  were  25  failures  with  a 
circulation  of  $1,648,600  and  a  loss  of  only 
$72>849,  showing  a  steady  gain  as  the  result 
of  experience.  After  1861  there  were  no 
failures  that  resulted  in  loss  to  note-holders,  except  perhaps 
by  delay  in  realizing  on  the  securities.  The  system  was  now 
perfect  so  far  as  security  was  concerned. 

Mr.  Root  makes  a  comparison  of  the  results  of  the  Safety 
Fund  and  the  Free  Bank  systems  as  to  security,  as  to  cost, 
and  as  to  elasticity.  As  to  security  he  finds  very  little  room 
for  preference  between  them.  Each  of  them,  when  cured  of 
its  early  mistakes  of  detail,  was  satisfactory  in  this  particu- 
lar, As  to  cost,  the  safety  fund  system  might  call  for  one- 


THE  FREE  BANK  SYSTEM.  353 

half  per  cent  per  annum  from  the  associated  banks.  The 
losses  to  the  Free  Bank  system  consisted  in  the  sacrifice  of 
their  deposited  securities,  which  would  be  sure  to  depreciate 
when  any  considerable  number  of  failures  occurred  about  the 
same  time.  The  data  are  not  sufficient  to  form  any  decided 
opinion  as  to  relative  cost.  As  to  elasticity,  or  the  power  to 
respond  quickly  to  the  demands  of  business  for  more  bank 
notes,  the  advantages  were  largely  with  the  safety  fund 
system  since  it  was  not  necessary  to  buy  securities  in  the 
market,  and  lodge  them  with  the  State  officials  and  go  through 
various  formalities  before  meeting  the  demand.  In  the  Free 
Bank  system  the  principle  of  credit  is  expunged  from  circu- 
lating notes.  These  banks,  after  buying  their  notes  from  the 
State  Comptroller,  could  not  put  out  any  more  of  them  than 
the  safety  fund  banks  could  of  theirs,  which  cost  nothing, 
nor  keep  them  out  any  longer.  When  the 

SSSST*1™     notes  of  the  free  banks  came  back  to  their 

counters  they  became  dead  capital,  earning  no 
interest,  although  they  had  cost  something  more  than  100 
cents  per  dollar.  Hence  those  banks  would  take  out,  *>., 
buy  from  the  Comptroller,  no  more  than  the  average  amount 
which  they  could  keep  in  circulation.  This  would  leave 
them  little  or  no  margin  for  special  occasions,  whereas  the 
safety  fund  banks  could  meet  every  demand  as  it  came  with- 
out expense.  Accordingly  there  was  a  regular  rise  and  fall 
of  the  circulation  of  the  safety  fund  banks  according  to  the 
seasons  and  the  state  of  trade,  while  that  of  the  free  banks 
was  comparatively  rigid.  The  workings  of  the  two  systems 
are  represented  by  charts  in  Mr.  Root's  pamphlet. 

By  the  act  of  April  29,  1863,  bonds  and  mortgages  were 
wholly  discarded  as  security  for  circulating  notes,  but  they 
were  restored  in  1892  in  the  statutory  revision.  Such  mort- 
gages must  now  be  on  "  improved,  unincumbered  real  prop- 
erty of  the  State  of  New  York  worth  75  per  cent  more  than 


354  REPRESENTATIVE  MONEY. 

the  amount  thereon  loaned."  The  other  securities  allowed 
to  be  received  for  circulating  notes  are  "interest-bearing 
stocks  or  bonds  of  the  United  States,  or  of 

the  State  of  New  York'  or  of  any  county  or 
incorporated  city  of  this  State  authorized  to 

be  issued  by  the  Legislature,"  the  aggregate  amount  of  notes 
issued  to  any  bank  or  individual  banker  not  to  exceed  90  per 
cent  of  the  market  value  and  in  no  case  90  per  cent  of  the 
par  value  of  the  securities.  Of  course,  all  these  provisions 
for  the  issue  of  circulating  notes  are  inoperative  while  the 
Federal  10  per  cent  tax  on  the  notes  of  the  State  banks  re- 
mains in  force. 

The  free  banking  law  harmonized  so  well  with  the  idea  of 
equal  rights  and  gave  such  promise  of  security  to  note- 
holders that  it  became  popular  and  spread  over  the  country 
and  to  Canada.  It  was  enacted  in  sixteen  States.  It  was 
adopted  permissively  in  Massachusetts,  Ohio,  and  Louisiana, 
but  failed  to  take  root  there  because  the  ground  was  already 
occupied  by  other  satisfactory  systems. 

The  State  of  Illinois  passed  her  free  banking  law  in 
1851.  It  was  submitted  to  a  vote  of  the  people  in  Novem- 
ber of  that  year  and  ratified.  It  provided  that  any  number 
of  persons  might  organize  a  bank,  but  that  no  bank  should 
have  a  less  capital  than  $50,000.  It  did  not  require  that  a 
bank  should  have  any  directors.  The  bank's 
capital  might  consist  wholly  of  bonds  of  States 
or  the  United  States  deposited  with  the  State 
Auditor  as  security  for  its  circulating  notes.  The  auditor 
could  deliver  to  the  bank  in  circulating  notes  eighty  per 
cent  of  the  market  value  of  the  securities.  No  examination 
of  the  affairs  of  the  banks  by  public  officers  could  be  had 
except  on  the  affidavit  of  the  shareholders,  and  then  only 
for  the  purpose  of  ascertaining  the  safety  of  the  investments. 
A  subsequent  amendment  provided  for  an  annual  examina- 


THE  FREE  BANK  SYSTEM.  355 

tion  by  bank  commissioners  of  the  securities  deposited 
against  circulating  notes.  The  banks  were  allowed  to  pay 
out  the  notes  of  any  specie-paying  banks  of  the  United 
States  or  of  Canada,  no  matter  how  remote.  These  institu- 
tions, of  which  there  were  120  at  one  time,  were  banks  of 
circulation  only.  Their  business  was  that  of  converting 
State  bonds  into  circulating  notes,  getting  these  into  the 
hands  of  the  people  for  value,  and  taking  measures  to  pre- 
vent the  note-holders  from  calling  on  them  for  specie.  There 
were  attempts  at  first  to  do  a  legitimate  banking  business  in 
the  large  towns  under  this  law,  but  they  were  ineffectual 
because  the  notes  of  such  banks  would  be  returned  for 
redemption  while  those  of  remote  and  inaccessible  places 
would  remain  in  circulation.  In  practice  it  was  hardly 
necessary  for  the  bank  to  have  a  place  of  business  if  its 
notes  were  secured.  In  some  instances  where  attempts  were 
made  in  Illinois  to  present  notes  for  redemption  at  the 
bank's  counter,  no  counter  was  found,  but  merely  a  hired 
room  in  some  place  remote  from  any  railway  station  and 
situated  on  some  bottomless  prairie  road. 

The  Chicago  Democrat  of  September  27,  1857,  thus 
describes  the  process  of  starting  a  free  bank  in  Illinois : 

"  A  number  of  men  get  together,  mostly  old  broken-down 
politicians.  They  want  to  build  a  railroad.  They  have  no 
money  —  one  would  think  a  very  serious  objection.  Not  so, 
however,  in  these  times,  when  it  can  be  manu- 
factured  to  order  by  wholesale.  They  employ 
John  Thompson  to  purchase  State  bonds  for 
them  and  pay  therefor,  trusting  them  for  his  pay  till  the  first 
batch  of  bank  notes  founded  on  them  is  issued.  They  issue 
their  railroad  bonds,  hypothecate  them  in  Wall  Street  and 
pay  John  Thompson  for  the  State  stocks.  They  are  then 
ready  with  a  State  stock  secured  circulation  to  commence 
the  road.  The  only  trouble  is  to  keep  the  bills  afloat.  But 


356  REPRESENTATIVE  MONEY, 

this  is  managed  very  easily.  The  bank  need  only  to  locate 
where  it  will  not  pay  for  any  one  to  run  on  it ;  for  example 
either  in  Rhode  Island,  or  Maine,  or  in  some  back  county 
in  this  State.  The  people  take  the  money  as  long  as  it  goes, 
while  the  Chicago  and  other  bankers,  to  whom  exchange  is 
at  all  times  a  prime  necessity,  are  afraid  to  run  upon  it  for 
fear  of  breaking  it  and  thus  creating  a  panic.  The  owners 
of  the  bank  in  this  way  trusting  to  luck  or  the  progress  of 
events,  keep  the  institution  going  as  long  as  they  can,  and 
when  they  can't  do  so  any  longer  let  it  break,  almost  in- 
variably themselves  taking  care  to  be  ready  to  stand  from 
under  when  the  crash  comes." 

John  Wentworth,  the  editor  of  this  paper,  was  opposed  to 
all  banks  and  was  somewhat  given  to  exaggeration,  but  in 
this  case  he  told  the  unvarnished  truth. 

So  disastrous  was  the  breakdown  of  the  Illinois  free  banks 

in  the  panic  of  1857  that  in  the  early  months  of  1858  Eastern 

exchange  was  at  15  per  cent  premium  in  Chi- 

ofreia57OWn          caS°-     The  banks  really  had  no  caPital  ex- 
cept  the  security  bonds  in  the  hands  of  the 

State  Auditor.  They  were  not  engaged  in  the  banking 
business  in  any  proper  sense  of  the  word.  Nevertheless 
they  got  on  their  feet  again  in  the  course  of  the  next  three 
years,  so  that  in  1861,  when  the  war  began,  there  were  112 
so-called  "solvent  banks"  in  existence,  meaning  those  that 
had  survived  the  disasters  of  1857  or  had  been  established 
subsequently.  When  the  political  sky  became  overcast  the 
banks  began  to  quake  again,  because  the  security  bonds  be- 
gan to  decline.  The  depreciation  of  the  notes  was  rapid. 

Lists  of  banks,  with  the  rates  at  which  their 
Of  I86i.  notes  would  be  received  in  trade,  were  posted 

in  all  shops,  railroad  offices  and  brokers' 
offices,  and  published  in  the  newspapers.  There  was  a 
merchants'  list,  a  bankers'  list,  and  a  railroad  list,  and  these 


THE  FREE  BANK  SYSTEM.  357 

were  subject  to  change  without  notice.  In  August,  1861, 
the  system  collapsed.  At  the  end  of  the  year  only  seven 
free  banks  remained,  with  a  total  circulation  of  $147,000. 

The  Legislature  was  bewildered  by  the  crumbling  of  the 
system  on  whose  security  such  extravagant  hopes  had  been 

built.  An  act  was  passed  providing  that  no 
Collapse.  bank  should  have  a  circulation  exceeding 

three  times  its  capital,  and  that  the  bonds  de- 
posited to  secure  its  circulation  should  not  be  considered  as 
evidence  of  capital.  The  system  never  recovered  from  the 
shock.  The  circulation  outstanding  at  the  beginning  of 
1 86 1  was  $12,320,694.  The  average  loss  to  note-holders 
was  40  per  cent.1 

The  free  banking  law  of  Indiana,  passed  May  28,  1852, 
was  very  similar  to  that  of  Illinois.  The  differences  were, 

that  in  Indiana  the  Auditor  might  issue  circu- 
indiana.  lating  notes  to  the  full  amount  (instead  of 

eighty  per  cent)  of  the  securities  deposited, 
and  that  each  bank  must  have  specie  in  its  own  vaults  equal 
to  twelve  and  one-half  per  cent  of  its  circulating  notes. 
The  free  banks  of  Indiana  were  as  worthless  and  predatory 
"wild  cats"  as  ever  disgraced  a  civilized  community.  Hon. 
Hugh  McCulloch  has  given  us  their  modus  operandi: 

"A  single  case  [he  says]  illustrates  the  operation  of  free 
banking  in  Indiana  under  the  first  free  bank  act.  An 
enterprising  gentleman,  whose  cash  capital  did  not  exceed 
ten  thousand  dollars,  in  connection  with  two  others  who 
were  utterly  impecunious,  bought,  mostly  on  credit,  fifty 
thousand  dollars  of  the  bonds  of  one  of  the  Southern  States. 
These  bonds  he  deposited  with  the  Treasurer,  and  as  soon 
as  they  could  be  engraved  he  received  an  equal  amount  of 
notes,  with  which  he  paid  for  the  bonds.  This  transaction 
having  been  completed,  more  bonds  were  bought  and  paid 

1  History  of  Chicago,  by  A.  T.  Andreas,  ii,  616-624, 


358  REPRESENTATIVE  MONEY. 

for  in  the  same  manner;  and  the  operation  was  continued 
until  the  financial  crisis  of  1857  occurred;  at  which  time 
this  bank,  which  had  been  started  with  a  capital  of  ten 
thousand  dollars,  had  a  circulation  of  six  hundred  thousand 
dollars,  secured  by  State  bonds,  on  which  the  bank  had  for 
two  or  three  years  been  receiving  the  interest.  .  .  .  These 
free  banks,  organized  as  most  of  them  were  as  banks  of 
circulation  only,  had  nothing  to  do  but  to  put  out  their  notes 
and  draw  interest  on  their  bonds.  Their  life  was  pleasant 
but  short;  their  demise  ruinous  and  shameful.  As  soon  as 
their  notes  began  to  be  presented  for  payment  they  died 
without  a  struggle.  .  .  .  Upon  the  failure  of  a  bank  the 
treasurer  offered  to  surrender  the  bonds,  dollar  for  dollar, 
for  the  notes  which  they  were  pledged  to  secure.  The 
money  dealers  were  prompt  in  availing  themselves  of  this 
offer.  Never  was  so  active  and  profitable  a  business  done 
by  the  brokers  of  Cincinnati,  Indianapolis,  and  other  cities 
as  was  done  by  them  in  buying,  assorting  and  exchanging 
with  each  other  the  notes  of  the  suspended  banks,  and  in 
receiving  for  them  the  bonds  which  were  held  by  the 
treasurer.  The  brokers  were  enriched  by  the  operation; 
the  losers  were  the  note-holders,  and  these,  as  is  usually  the 
case  in  bank  failures,  were  mostly  of  that  class  which  is  the 
least  able  to  bear  losses."  J 

The  free  banking  law  of  Wisconsin,  passed  in  1853,  al- 
lowed the  bank  comptroller  to  issue  circulating  notes  to  the 
full  amount  of  the  bonds  of  States  deposited  with  him  by 
banks.  It  allowed  him  also  to  receive  the  first  mortgage 
bonds  of  any  railroad  in  the  State  twenty  miles  long,  or  di- 
visional mortgage  bonds  on  sections  of  road  of  not  less  than 
forty  miles,  such  road  to  be  first  inspected  as  to  its  physical 
condition  by  the  Governor,  the  Attorney-General  and  the 

1  Men  and  Measures  of  Half  a  Century,  by  Hugh  McCulloch,  pp. 
125,  126. 


THE  FREE  BANK  SYSTEM.  359 

bank  Comptroller,  or  any  two  of  them.  On  such  securities 
eighty  per  cent  of  circulating  notes  could  be  issued,  and  one- 
half  of  the  securities  of  any  bank  might  con- 
Wisconsin,  sist  of  railroad  bonds  of  this  description. 
Directors  or  stockholders  were  required  to 
give  their  personal  bonds  to  the  extent  of  one-fourth  of  the 
amount  of  the  circulating  notes,  as  security  against  deprecia- 
tion of  the  other  securities.  Except  in  this  particular  the 
shareholders  were  not  liable  beyond  the  amount  of  their 
capital  invested.  The  banks  might  lend  money  on  real 
estate  security  to  any  extent.  This  law  was  really  worse 
than  that  of  Illinois  or  Indiana,  but  it  was  better  administered. 
The  Comptroller  was  more  careful  about  the  securities  he 
took  and  as  a  consequence  the  banks  were  better  fortified 
when  the  strain  came. 

Nevertheless  there  were  some  serious  troubles  in  Wiscon- 
sin. At  the  outbreak  of  the  war  in  1861  there  was  a  heavy 
decline  in  the  securities  deposited  for  circulation.  The 
Bank  of  Eau  Claire  and  the  Koshkonong  Bank  failed.  The 
securities  of  the  former  netted  84  cents  on  the  dollar  for  the 
note-holders  and  those  of  the  latter  only  54^  cents.  The 
Comptroller  made  a  call  on  the  banks  for  8  per  cent  of 
additional  security.  "  Fifty-eight  banks  failed  to  respond 
and  forty  did  not  even  acknowledge  the  receipt  of  the  notice 
of  the  call."  The  sound  banks  in  Milwaukee,  in  order  to 
protect  themselves,  were  obliged  to  discriminate  between 
the  good  and  the  bad  notes  in  circulation.  Employers  of 
labor  were  obliged  to  pay  their  workingmen  the  same  money 
that  they  received,  and  when  the  latter  found  that  the  stuff 
was  uncurrent  they  put  the  blame  on  the  good  banks,  which 
had  thrown  out  the  bad  notes.  Bank  riots  broke  out  on 
the  24th  of  June.  "On  Monday  morning  a  mob  of  several 
hundred  people  with  a  band  of  music  marched  down  to  the 
corner  of  Michigan  and  East  Water  streets,  where  stood  the 


360  REPRESENTATIVE  MONEY. 

Wisconsin  Marine  and  Fire  Insurance  Company's  bank  on 
one  corner,  and  the  State  Bank  of  Wisconsin  on  the  other. 
Alexander  Mitchell,  after  locking  up  all  the  books,  currency, 
and  valuables,  attempted  to  address  the  crowd;  but  it  only 
hooted  and  yelled.  Then  a  volley  of  stones  was  hurled 
against  the  windows,  demolishing  nearly  all  the  panes  of  glass 
in  the  front  of  the  buildings.  This  so  delighted  the  mob 
that  now,  under  the  control  of  the  worst  rioters,  it  made  a 
rush  for  the  offices  ;  attacked  the  bank  officials  and  employees ; 
tried  to  break  open  the  safes  and  vaults,  and  finally,  piling 
up  all  the  broken  furniture  in  the  several  offices,  applied  the 
torch.  .  .  .  Threatened  riots  kept  the  city  in  alarm  for  some 
days  after.  State  troops  were  called  to  Milwaukee  and  the 
disturbance  conclusively  showed  that  the  issues  of  all  banks 
that  could  not  be  put  in  shape  to  meet  specie  payments  in 
December  must  be  retired  from  circulation."  1  During  the 
year  the  rate  of  exchange  on  New  York  ranged  from  3  to  20 
per  cent  premium. 

The  Free  Banking  system  was  adopted  permissively  in 
Canada  in  1850.  Its  advocates  predicted  great  things  for 
it.  Only  six  banks  were  organized  under  it,  although  special 
advantages  were  offered  in  the  way  of  exemption  from  tax- 
ation. Their  circulation,  which  reached  $1,080,684  in  1856, 
ran  down  to  $495,631  in  1860,  and  the  next  year  three  of 
the  six  practically  withdrew  from  the  field,  and  now  only  one 
remains.  The  reason  for  the  failure  of  the  system  was  that 
the  free  banks  could  not  compete  with  their  neighbors  and 
rivals  in  business.  When  the  system  was  started 
Slfanada"11^  ^e  Canadian  government  debentures  paid  six 
per  cent  interest  and  could  be  bought  at  a 
price  which  netted  seven  per  cent  to  the  investor.  The  ad- 
vocates of  the  system  said  that  this  would  furnish  a  splendid 

1  History  of  the  State  Banks  and  Early  Banking  System  of  Wiscon- 
sin, by  Clarence  Bernard  Hadden. 


ECCENTRICITIES  OF  BANKING.  361 

margin  of  profit.  The  banks  would  get  7  per  cent  on  their 
deposited  bonds  plus  whatever  they  could  obtain  from  the 
loan  of  their  circulating  notes.  This  was  a  half-truth.  The 
fact  was  overlooked  that  the  other  banks,  having  their  capi- 
tal free  (not  locked  up  in  government  debentures),  could 
lend  it  to  the  trading  community  at  higher  rates  generally 
than  government  securities  paid,  and  could  lend  their  circu- 
lating notes  just  as  well  as  the  free  banks  could  lend  theirs. 
Thus  the  business  opportunities  were  in  favor  of  the  chart- 
ered banks,  and  this  is  proved  by  the  fact  that  they  crowded 
the  free  banks  to  the  wall.  The  Canadian  free  banking 
act  was  repealed  in  I866.1 


CHAPTER  XIII. 
ECCENTRICITIES   OF  BANKING. 

THE  usual  method  of  forming  a  bank  sixty  years  ago 
was  as  follows :  First,  get  a  charter  from  the  State  Legisla- 
ture. This  would  form  the  basis  of  a  speculation  in  shares. 
It  was  customary  to  subscribe  for  a  much  larger  number  of 

shares  than  one  expected  to  get.  One  bank 
Auid  Lang  Syne,  is  mentioned  with  an  authorized  capital  of 

$100,000,  where  the  subscriptions  amounted 
to  eight  millions.  In  Philadelphia  the  struggle  at  the  win- 
dows of  the  offices  where  subscriptions  were  taken  was  often 
attended  with  severe  personal  injury.  "The  most  disgrace- 
ful riots  that  occur  in  Philadelphia,"  says  Gouge,  "are 
those  which  are  .produced  by  the  opening  of  the  books  of 
subscription  for  a  new  bank."  If  the  competition  had  been 
very  brisk  the  shares  would  generally  command  a  premium 

!The  Canadian  Banking  System,  1817-1890,  by  R.  M.  Breckenridge, 
pp.  103-117, 


362  REPRESENTATIVE  MONEY. 

after  the  books  were  closed.     This  was  the  principal  part  of 
the  game. 

The  charter  usually  provided  that  the  subscriptions  should 
be  paid  in  installments  of  five  or  ten  per  cent  each  and  that 
after  one  or  two  had  been  paid  the  bank  might  begin  busi- 
ness. The  first  installment  having  been  paid,  the  bank  would 
buy  office  furniture  and  procure  plates  for  the  printing  of 
circulating  notes.  It  would  then  be  ready  to  discount  com- 
mercial paper,  giving  its  own  notes  for  those 

Fictitious  of  merchants  an(j  manufacturers.     When  the 

capital. 

next  installment  of  the  stock  subscription  be- 
came due  the  subscribers  would  put  in  their  own  promissory 
notes,  the  bank  would  discount  them,  paying  its  circulating 
notes  out  at  one  counter  and  receiving  them  back  at  an- 
other, as  payment  of  the  stock  subscriptions.  This  process 
would  be  continued  until  all  the  "capital,"  so  called,  was  ac- 
counted for.  The  interest  due  on  the  stock  notes  would  be 
offset  by  the  bank's  dividends,  with  a  surplus  besides, 
provided  the  bank  did  not  break.  If  the  times  should  be 
unpropitious  and  a  suspension  of  specie  payments  should 
befall,  the  State  legislatures  were  lenient,  the  banking 
fraternity  was  powerful  and  public  opinion  was  so  lifeless 
that  the  banking  business  might  go  on  just  as  well  as  before, 
or  even  better  since  there  would  now  be  no  restraint  upon 
the  bank's  issues. 

It  is  impossible  to  say  what  percentage  of  the  banking 
capital  of  the  country  was  of  this  fictitious  character.  Mr. 
Raguet,  writing  in  1839,  said:  "It  is,  perhaps,  not  probable 
that  many  of  the  banks  of  the  United  States  have  been  en- 
tirely established  upon  this  principle,  but  no  small  number 
of  them  have  been  partially  so."  The  published  statistics  of 
bank  capital  at  this  period  are,  therefore,  not  to  be  de- 
pended on.  Mr.  Gouge  thinks  that  all  other  bank  statistics, 
even  as  to  the  number  of  banks  existing  and  the  number 


ECCENTRICITIES  OF  BANKING,  363 

that  had  failed,  were  worthless.  "We  have  been  for  seven 
years,"  he  says,  "collecting  the  accounts  of  the  banks,  but 
so  little  success  has  crowned  the  labors  of  Mr.  Crawford, 
Mr.  Gallatin,  and  Mr.  Niles,  that  we  do  not  think  it  worth 
while  to  arrange  our  own  materials." 

There  was  a  general  bank  suspension  except  in  New 
England  and  a  very  few  Southern  and  Western  banks  in 
August  and  September,  1814.  There  had  been  a  bank 
mania  in  Pennsylvania,  early  in  the  year,  forty-one  new  banks 
having  been  chartered  in  spite  of  the  Governor's  veto,  and 
organized  on  a  capital  consisting  principally  of  stock  notes. 

"At  the  time  of  the  suspension  of  our  city  banks,"  says 
a  report  to  the  Pennsylvania  Legislature  in  1820,  by  a  com- 
mittee, of  which  Mr.  Raguet  was  chairman,  "a  public  meet- 
ing of  merchants  and  others  was  held  who  publicly  sanc- 
tioned the  measure  under  a  pledge  given  by  the  banks  that 
as  soon  as  the  war  was  terminated  specie  payments  would 
be  resumed."  News  of  the  treaty  of  peace  came  within  six 
months,  but  specie  resumption  did  not  take 

Note  issues  of       place.     "The  redemption  of  the  pledge,"  the 

Banks  while 

Suspended.  report  continues,     was  not  demanded  by  the 

public  at  the  stipulated  time,  and  the  banks, 
urged  on  by  cupidity,  and  losing  sight  of  moral  obligation  in 
their  lust  for  profit,  launched  out  into  an  extent  of  issues  un- 
exampled in  the  annals  of  folly."  Bank  notes  instead  of 
rising  in  value  after  the  close  of  the  war  sank  lower,  those  of 
Philadelphia  being  depreciated  16  to  20  per  cent,  those  of 
the  interior  of  Pennsylvania  25  to  50  per  cent.  The  New 
England  banks  and  a  few  others  continued  to  pay  specie, 
but  that  did  not  prevent  their  notes  from  depreciating,  "for," 
says  Gouge,  "  nobody  knew  how  long  any  distant  bank  would 
continue  to  pay  specie.  All  the  banks  whose  notes  were  at 
a  discount  at  New  York  of  less  than  5  per  cent  were  under- 
stood to  pay  specie  on  demand." 


364  REPRESENTATIVE  MONEY. 

As  long  as  the  banks  could  continue  to  issue  notes  with- 
out the  necessity  of  redeeming  them  they  had  prosperous 
times  and  made  large  dividends,  and  the  longer  this  system 
lasted  the  less  reason  did  they  see  for  making  any  change. 
They  were  simply  swapping  their  notes  for  those  of  private 
citizens,  on  condition  that  the  latter  should  pay  6  to  10  per 
cent  interest,  together  with  the  principal  at  maturity,  while 
the  former  paid  neither  interest  nor  principal.  This  one- 
sided arrangement  did  not  escape  criticism,  but  such  was  the 
supineness  of  public  opinion  that  months  and  years  passed 
without  any  effective  movement  to  compel  resumption. 
Meanwhile,  the  United  States  government  was  receiving  the 
notes  of  suspended  banks  in  payment  of  duties  and  Con- 
gress refused  to  pass  a  law  to  discontinue  this  slovenly  prac- 
tice. The  usual  plea  that  bank  notes  had  not  fallen  in  value, 
but  that  specie  had  risen,  was  industriously  promulgated  and 
Niles  says  that  it  was  seriously  contemplated  to  legalize  sus- 
pension as  a  permanent  policy  by  act  of  Congress. 

In  January,  1817,  the  new  Bank  of  the  United  States, 
which  was  itself  a  specie-paying  institution,  persuaded  the 
local  banks  of  Philadelphia  to  enter  into  an  agreement  to  re- 
sume specie  payments  on  the  2ist  of  February,  following. 
"The  city  banks,"  says  Mr.  Raguet's  report,  "sensible  that 
their  power  over  the  community  was  so  great  that  few  indi- 
viduals would  have  the  boldness  to  make  large  demands 
upon  them  for  coin,  and  relying  upon  that  forbearance  which 
had  hitherto  been  extended  to  them  by  an  injured  public, 
who  had  been  for  two  years  and  a  half  paying  them  6  per 
cent  per  annum,  for  the  use  of  their  dishonored  bills,  con- 
sented to  the  arrangement ;  and  specie  payments  were  nomi- 
nally resumed  on  the  appointed  day."  That  the  resumption 
was  only  nominal  was  proved  by  the  fact  that  coin,  both 
American  and  foreign,  continued  to  bear  a  premium  in  the 
City  of  Philadelphia.  "Depreciation,"  says  the  report,  "can 


ECCENTRICITIES  OF  BANKING.  365 

as  well  result  from  the  forbearance  of  the  public  to  demand 
their  rights  as  from  the  refusal  of  the  banks  to  pay  their 
engagements."  Such  a  state  of  public  opinion 
Public  opinion,  is  now  hard  to  understand,  but  I  can  recall  a 
time  shortly  before  the  civil  war  when  drawing 
specie  from  a  bank  was  considered  disgraceful.  Any 
demand  on  a  bank  for  coin  unless  the  person  making  it  had 
a  good  reason  —  one  which  would  pass  muster  in  the  neigh- 
borhood—  was  considered  a  "run,"  and  the  bank  was  held 
to  be  justified  in  paying  the  most  inconvenient  kind  of 
coin  and  in  taking  the  longest  time  to  count  it,  especially 
if  the  person  demanding  specie  intended  to  take  it  out  of 
town. 

In  the  midst  of  the  hey-day  of  rickety  banking  and  wild 
speculations  the  panic  and  crash  of  1818  arrived,  one  of  the 
most  disastrous  in  our  history.  Both  Gouge  and  Raguet 
think  that  the  wild  speculations  were  caused  by  the  over- 
issues of  bank  notes,  but  they  give  no  conclusive  reasons  for 
thinking  so.  The  two  phenomena  were  simultaneous,  but 
it  does  not  follow  that  the  one  was  caused  by  the  other. 
Another  diagnosis  of  the  disease  existing  in  1818-19  was 
sketched  in  a  report  made  to  the  Pennsylvania  Legislature  in 
1820  by  a  committee  of  which  Wm.  J.  Duane  was  chairman, 
thus  : 

"  In  defiance  of  all  experience  and  in  contempt  of  warnings 
almost  prophetic,  which  were  given  to  them  at  the  time,  the 
people  of  Pennsylvania  during  an  expensive 
war  and  in  the  midst  of  great  embarrassments 
established  forty-one  new  banks  with  a  capital 
of  seventeen  and  a  half  millions  of  dollars  and  authority  to 
issue  bank  notes  to  double  that  amount.  In  consequence 
of  this  most  destructive  measure  the  inclination  of  a  large 
part  of  the  people,  created  by  past  prosperity,  to  live  by 
speculation  and  not  by  labor,  was  greatly  increased  ;  a  spirit 


366  REPRESENTATIVE  MONEY, 

in  all  respects  akin  to  gambling  prevailed ;  a  fictitious  value 
was  given  to  all  descriptions  of  property  ;  specie  was  driven 
from  circulation  as  if  by  common  consent,  and  all  efforts  to 
restore  society  to  its  natural  condition  were  treated  with 
undisguised  contempt."  In  other  words,  the  excessive  issues 
were  merely  part  and  parcel  of  the  general  speculation. 

Banking  in  the  South,  was,  if  possible,  more  lawless  than 
in  the  Central  States,  and  public  opinion  was  even  more 

debauched.  A  report  made  to  the  Legislature 
North  Carolina,  of  North  Carolina  in  1828,  disclosed  the 

following  facts :  The  Bank  of  Cape  Fear 
and  the  Bank  of  Newbern  were  chartered  in  1804.  The 
law  in  each  case  required  that  their  capital  should  be  paid 
in  gold  or  silver.  It  was  not  so  paid.  A  few  years  later 
the  charters  were  amended  so  as  to  increase  their  capitals 
about  threefold.  Not  a  dollar  of  this  was  paid  except  in  the 
form  of  stock  notes.  The  nominal  capital  of  each  was  now 
$800,000.  Upon  this  fraudulent  basis  they  issued  notes  to 
the  amount  of  between  $3,000,000  and  $4,000,000,  with  which 
they  discounted  paper,  drawing  6  per  cent  interest,  "  so  that, 
for  the  use  of  their  notes,  which,  intrinsically,  were  of  no 
value  at  all,  the  stockholders  of  these  two  banks  have  drawn 
from  the  people  by  way  of  interest  something  like  $200,000 
annually." 

The  State  Bank  of  North  Carolina  was  incorporated  in 
1810  with  a  capital  of  $1,600,000,  of  which  the  State  sub- 
scribed $250,000.  The  law  required  that  three-fourths  of 
the  capital  should  be  paid  in  gold  and  silver  and  one-fourth 
in  old  legal  tender  notes  issued  by  the  State  before  the  adop- 
tion of  the  Federal  Constitution.  Only  $500,000  was  paid 
in  specie,  $424,000  being  paid  in  the  notes  of  the  bank  itself 
and  the  remainder  in  the  notes  of  other  banks.  On  this 
foundation  it  issued  circulating  notes  to  the  amount  of  nearly 
$12  to  $i  of  the  specie  in  its  vaults. 


ECCENTRICITIES  OF  BANKING.  367 

In  1819,  ?>.,  five  years  after  the  war,  the  three  banks 
entered  into  an  agreement  with  each  other  not  to  pay  specie, 
and  their  circulating  notes  immediately  fell  to  15  per  cent 
discount.  They  then  had  the  impudence  to  introduce  a 
clause  into  the  promissory  notes  which  they  discounted,  re- 
quiring payment  in  specie  ;  that  is,  they  lent  their  own  irre- 
deemable notes  to  the  public  on  condition  that  payment  should 
be  made  in  coin.  The  specie  so  received  was  used  to  buy 
up  their  own  circulating  notes  at  a  discount.  They  made 
false  statements  to  the  Legislature.  They  bought  stock  in 
the  Bank  of  the  United  States  in  direct  violation  of  their 
charters.  At  the  time  when  the  investigation  was  made,  the 
State  bank  had  less  than  $1000  specie  in  its  vaults. 

The  recommendation  of  the  committee  in  view  of  these 
shocking  revelations  was  that  the  Attorney-General  should 
be  directed  to  institute  proceedings  for  forfeiture  of  charter. 
Even  this  suggestion  failed.  The  banks  threatened  in  a 
lordly  way  to  call  in  their  loans.  The  Legislature  immediately 
became  deaf  and  the  people  dumb.1 

The  State  of  Georgia,  in  granting  a  charter  to  the  Bank  of 
Darien  in  1818,  put  in  a  clause  providing  that  in  every  case 
where  a  demand  was  made  on  it  for  the  redemp- 
Georgia.  tion  of  its  notes  in  specie  the  cashier  might 

require  the  person  making  the  demand  to  take 
an  oath  in  writing  "  that  such  notes  or  bills  so  presented  for 
payment  are  not  the  property  of  any  other  bank,  company 
or  incorporation."  The  bank  enlarged  this  privilege  by  adopt- 
ing a  rule  that  every  person  presenting  its  notes  for  redemp- 
tion must  take  an  oath  in  the  bank,  before  a  justice  of  the 
peace  and  in  the  presence  of  five  directors  and  the  cashier, 
that  he  was  the  owner  of  the  notes  and  was  not  acting  as  the 
agent  of  anybody  else.  Of  course,  if  it  was  very  inconvenient 
for  the  bank  to  pay,  it  would  be  very  difficult  for  the  other 

1  Short  History  of  Paper  Money  and  Banking,  by  W.  M.  Gouge. 


368  REPRESENTATIVE  MONEY. 

party  to  bring  a  justice  of  the  peace,  five  directors  and  the 
cashier  together.  One  of  the  devices  of  the  State  Bank 
of  North  Carolina  was  to  require  every  person  presenting 
its  notes  for  redemption  to  take  an  oath  that  he  was  not  a 
broker. 

In  1815  the  government  issued  treasury  notes  bearing 
only  a  nominal  rate  of  interest.  A  committee  of  the  House 
reported  that  this  was  a  violation  of  law,  but  nothing  was 
done  about  it.  The  notes  were  not  legal  tender,  but  they 
formed  a  part  of  the  circulating  medium.  All  United  States 
notes  issued  prior  to  the  civil  war,  except  these,  bore  interest 
at  a  sufficient  rate  to  give  them  the  character  of  exchequer 
bills.1 

Among  the  minor  abuses  of  banking  at  this  time,  was  the 
practice  of  requiring  borrowers  to  leave  on  deposit  a  certain 
proportion  of  the  amount  borrowed,  in  some  cases  forty  per 
cent,  so  that  the  bank  could  lend  the  difference  to  somebody 
else  and  thus  get  double  interest.  Another  was  the  practice 
of  issuing  post  notes,  payable  thirty  or  sixty  days  after  date, 
this  feature  being,  in  some  cases,  printed  in  very  small  letters 
so  that  an  ordinary  observer  would  not  notice  it.  When  a 
merchant  accepted  sixty-day  post  notes  in  exchange  for  his 
own  sixty-day  note  he  simply  made  a  present  to  the  bank  of 
the  interest  for  that  period  of  time,  yet  the  practice  was 
extensive  throughout  the  United  States.  Some  of  the  States 
had  laws  forbidding  the  issue  of  post'  notes,  but  they  were 
evaded  by  the  device  of  lending  notes  on  condition  that  they 
should  be  put  in  circulation  at  a  certain  distance 
Minor  Abuses.  from  the  bank,  or  should  be  kept  out  a  certain 
length  of  time,  or  should  only  be  used  as  col- 
lateral security  for  loans  at  other  banks.  One  of  the  most 
common  practices  in  discounting  mercantile  paper  was  to  pay 
out  the  notes  of  distant  banks  that  were  at  a  discount.  .Mr. 

1  See  Knox's  United  States  Notes,  passim. 


ECCENTRICITIES  OF  BANKING.  369 

Raguet  gives  the  following  account  of  the  small  bank  notes 
of  the  period  : 

"  Prior  to  the  suspension  of  specie  payments  in  August, 
1814,  I  am  not  aware  that  any  notes  of  less  denomination 
than  five  dollars  were  anywhere  issued,  although  there  may 
have  been,  in  a  few  of  the  States.  By  that  event  specie  dis- 
appeared wholly  from  circulation  in  all  the  States  except 
those  of  New  England,  where  the  banks,  coerced  by  efficient 
laws  and  public  opinion  combined,  continued  to  fulfill  their 
engagements,  and  its  place  was  supplied  by  emissions  of 
notes  by  banks  from  three  dollars  down  to 
Shinplasters.  twenty-five  cents,  some  with  the  sanction  of 
law  granted  for  the  especial  occasion,  and 
some  without  it ;  and  by  other  emissions  by  all  sorts  of 
corporations,  public  officers,  private  institutions  and  even 
by  individuals,  who  generously  accommodated  the  public 
with  their  credit  for  sums  as  small  as  five  cents,  in  the  hope 
that  the  notes  would  be  worn  out  or  lost,  and  that  they  never 
should  be  troubled  with  a  demand  for  their  payment.  This 
wretched  state  of  things  continued  for  some  time  after  the 
restoration  of  specie  payments  in  February,  1817." 

Pennsylvania  prohibited  her  banks  from  issuing  notes 
smaller  than  five  dollars  after  October,  1817,  in  order  to  in- 
troduce silver  money,  but  did  not  prohibit  the  circulation  of 
such  notes  from  other  States.  She  was  immediately  flooded 
with  the  small  notes  and  tickets  of  New  York,  New  Jersey 
and  Delaware,  and  when  a  bill  was  introduced  in  the  State 
Senate  by  Mr.  Raguet  in  1820  to  prohibit  the  circulation  of 
these  foreign  issues  it  was  rejected  on  the  ground  that  the 
people  would  have  no  small  change.  So  the  result  was  that 
Pennsylvania  simply  exchanged  her  own  small  notes  and 
tickets  for  another  lot  that  she  knew  nothing  about  and 
could  not  control.  This  whimsical  state  of  things  lasted  nine 
years. 


370  REPRESENTATIVE  MONEY. 

Michigan  had  fourteen  chartered  banks  before  1837.      In 
that  year  she  passed  a  free  banking  act  which  closely  re- 
sembled the  New  York  law  of  1838.     If  the 

MichiSan  act  had  been  Put  in  successful  opera- 
tion that  State  would  have  been  justly  con- 
sidered the  originator  of  the  system.  As  matters  turned  out, 
the  only  fame  she  gained  was  that  of  adding  the  useful  phrase 
"  wild-cat  "  to  the  literature  of  banking.  The  law  provided 
that  any  number  of  freeholders  not  less  than  twelve  might 
organize  themselves  as  a  bank  and  open  books  of  subscription 
to  the  capital  stock  thereof,  ten  per  cent  to  be  paid  in  specie 
at  the  time  of  subscribing,  and  not  less  than  30  per  cent 
before  commencing  business.  The  banks  were  required  also 
to  deposit  security  with  the  auditor-general  of  the  State  for 
their  circulating  notes  and  other  liabilities.  The  securities 
might  be  bonds  and  mortgages,  or  the  personal  bonds  of 
resident  freeholders,  to  be  approved  by  the  treasurer  and 
clerk  of  the  county,  and  they  were  to  be  held  for  the  debts 
of  the  banks  in  case  the  other  assets  should  prove  inadequate. 
At  one  time  or  another  the  people  of  every  section,  State 
and  hamlet  in  the  Union  have  been  mad  with  the  conceit  that 
everybody  could  be  made  rich  by  means  of 
Craze  paper  money.  This  craze  was  now  rampant 

in  Michigan.  The  law  furnished  ample  facili- 
ties for  its  realization  and  was  accordingly  very  popular. 
Only  four  members  of  the  Legislature  voted  against  it.  In 
the  following  December  another  act  was  passed  providing 
for  the  appointment  of  three  commissioners  to  visit  and 
inspect  all  the  banks  every  three  months  and  especially  to 
examine  their  specie.  This  act  also  made  a  change  in  the 
system  of  deposited  securities  by  providing  that  they  should 
consist  of  bonds  and  mortgages  only. 

The   commissioners  started  on  their  journey  in  January, 
1838.      They    found    that    the    State    had   been   plentifully 


ECCENTRICITIES  OF  BANKING. 


371 


sprinkled  with  banks  and  bank  notes,  but  that  one  lot  of 
specie  had  served  as  the  basis  for  most  of  them,  being  used 
in  each  case  until  the  formalities  of  the  law  were  complied 
with,  and  then  passed  on  to  the  next.  In  other  cases  no 
specie  had  been  seen  at  any  time,  but  incantations  had  been 
held  with  imaginary  gold  in  the  form  of  specie  certificates 
and  specie  checks.  Mr.  Alpheus  Felch,  one  of  the  four 
members  of  the  Legislature  who  voted  against  the  bill,  says  : 
"  The  Farmer's  Bank  of  Genesee  was  organized  by  the 
use  of  stock  notes  instead  of  specie,  and  in  making  its  reports 
specie  certificates  to  the  amount  of  $35,500  were  used.  For 
the  Exchange  Bank  of  Shiawassee  specie  certificates  to  the 
amount  of  $27,000  were  used.  The  Bank  of  Kensington 
used  stock  notes  and  specie  checks.  The  Bank  of  Lapeer 
used  a  specie  certificate  to  the  amount  of  $15,000.  This 
certificate  was  given  by  an  individual  interested 
in  getting  up  the  Lapeer  Bank,  without  making 
any  deposit  or  having  anything  to  his  credit, 
and  was  cancelled  by  the  check  of  the  pretended  depositor 
made  simultaneously  with  the  certificate.  The  Wayne  County 
Bank  had  specie  certificates  to  the  amount  of  $30,000,  but 
was  originally  put  in  operation  on  checks  of  stock-holders 
which  were  never  presented,  acknowledged  or  paid."  l 

The  commissioners  learned  that  a  watch  was  kept  on  their 
movements  and  that  when  they  were  expected  to  visit  a  certain 
bank  the  requisite  amount  of  specie  would  be  sent  ahead  one 
day  or  one  night,  so  that  it  might  be  inspected,  and  then 
withdrawn  for  the  use  of  the  next  bank.  The  specie  in 
circulation  at  that  time  was  mostly  of  foreign 
origin.  After  a  particular  lot  had  been  in- 
spected two  or  three  times  it  could  be  identified 
by  the  preponderance  of  coins  of  this  or  that  country,  or  by 
special  marks  on  some  of  them.  In  this  way  the  commis- 
1  Early  Banks  and  Banking  in  Michigan,  by  Alpheus  Felch. 


Imaginary 
Specie. 


Fraud  and  Per- 
jury. 


372  REPRESENTATIVE  MONEY. 

sioners  easily  discovered  the  deception.  Yet  in  every  case 
somebody  was  found  to  swear  that  the  specie  belonged  to  the 
bank,  and  that  it  was  intended  to  be  kept  there  for  the  usual 
and  sole  business  of  that  bank.  The  bookkeeping  was  as 
free  as  any  other  part  of  the  banking.  Twenty-four  thousand 
dollars  of  the  notes  of  one  bank  were  outstanding  without 
any  entry  on  the  books  at  all,  or  any  scrap  of  paper  to 
represent  them.  The  specie  owned  by  this  bank  was  less 
than  $100.  Several  instances  of  this  kind  were  found  by  the 
commissioners. 

In  some  cases  even  more  unblushing  frauds  were  com- 
mitted. "  The  Bank  of  Sandstone,"  says  Mr.  Felch,  "  never 
had  any  specie,  and  although  its  liabilities  exceeded  $38,000 
it  had  no  assets  of  any  kind  at  the  time  when  it  was  examined. 
.  .  .  The  Jackson  County  Bank  placed  before  the  commis- 
sioners a  goodly  number  of  ponderous  and  well  filled  boxes, 
but  on  opening  them  and  examining  their  contents  the  top 
was  found  covered  with  silver  dollars,  but  below  was  nothing 
but  nails  and  glass.  Another  box  containing  silver  was  then 
brought  from  another  room  and  sworn  to  by  a  director  present 
as  the  property  of  the  bank,  but  he  afterwards  brought  an 
action  against  the  receiver  of  the  bank  claiming  it  as  his  own 
individual  property.  This  bank,  with  an  indebtedness  of 
some  $70,000,  had  not  more  than  $5,000  of  available  assets." 

Many  of  these  institutions  were  located  in  the  depths  of 
forests  where  there  were  few  human  habitations,  but  plenty 
of  wild  cats.  Thus  they  came  to  be  known  as  the  wild-cat 
banks.  Forty  of  these  so-called  banks  went  into  operation 
under  the  law  of  1837  with  a  nominal  capital  of  $3,900,000. 
All  but  four  of  them  failed  before  December, 
Dismal  End.  1839.  The  failure  of  the  free  banks  dis- 
credited the  chartered  banks  also,  and  brought 
all  of  them  down  except  three.  The  people  of  the  State,  who 
did  not  then  number  above  100,000,  and  were  very  poor, 


ECCENTRICITIES  OF  BANKING.  373 

were  left  with  $1,000,000  of  worthless  bank  notes  in  their 
hands.  When  an  attempt  was  made  to  realize  on  the  mort- 
gage securities  the  Supreme  Court  pronounced  the  free 
banking  act  unconstitutional  and  void.1 

The  general  bank  crash  of  1837  has  been  so  fully  treated 
by  other  recent  writers  that  I  shall  not  deal  with  it  here. 2 

It  thus  appears  that  an  active  and  intelligent  public 
opinion  is  indispensable  to  keep  banks,  as  well  as  other 
institutions,  in  good  order ;  and  for  this  there  is  no  possible 
substitute.  It  is  not  sufficient  that  the  banking  laws  are 
good.  They  must  be  promptly  and  inexorably  enforced, 
but  they  will  not  be  so  unless  public  opinion  demands  en- 
forcement. 

That  there  has  been  vast  improvement  in  these  matters 
since  the  period  embraced  in  this  sketch,  every  one  can  see. 
This  improvement  is  due  mainly  to  the  national  banking 
law.  By  bringing  all  note-issuing  banks  to  one  focus  it  has 
enabled  the  public  opinion  of  the  country  to  concentrate 
itself  on  a  single  system  and  a  single  set  of  facts  and  laws, 
instead  of  being  dispersed  and  brought  to  nought  by  trying 
to  grasp  a  great  number  of  varying  facts,  systems  and  laws. 
The  principal  advantage  here  is  that  it  brings  the  most 
intelligent  classes  and  sections  to  the  aid  of 
the  least  intelligent,  or,  if  need  be,  puts 
them  in  sharp  collision  with  each  other  and 
compels  them  to  fight  it  out.  New  England  after  manifold 
mishaps  and  blunders  got  her  banking  arrangements  into 
fairly  good  order,  while  those  of  many  other  States  were 

1  Mr.  Felch's  account  of  "  Early  Banks  and  Banking  in  Michigan  "  is 
reprinted  in  Senate  Ex.  Doc.  No.  38,  52d  Congress,  2d  session. 

2  Especially  valuable  are  the  chapters  relating  to  this  event  in  Sum- 
ner's  Life  of  Andrew  Jackson,  Schurz's  Life  of  Henry  Clay,  Bourne's 
History  of  the   Surplus   Revenue   of  1837,  and  Kinley's  Independent 
Treasury. 


374  REPRESENTATIVE  MONEY. 

little  better  than  legalized  brigandage.  If  we  had  had  any 
system  then  by  which  the  experience  and  the  knowledge 
of  New  England  had  been  forced  to  make  battle  against 
the  errors  and  the  torpor  of  other  sections,  the  result 
must  have  been  a  general  gain.  We  see  this  advantage 
even  now  in  the  prompt  and  effectual  punishment  of  offend- 
ers against  the  national  banking  law,  in  contrast  with  the 
slack  and  uncertain  enforcement  of  the  banking  laws  of  some 
of  the  States. 


CHAPTER  XIV. 
SOME   NOTABLE    BANKS. 

A.  —  OWNED  BY  STATES. 

THE  sad  array  of  banks  owned  wholly  by  States  has  a  shin- 
ing exception  in  the  Bank  of  the  State  of  South  Carolina. 
This  institution  grew  out  of  the  troubles  of  the  second  war 
with  England.  To  meet  the  financial  disorders  of  the  period 
the  Legislature  decided  to  form  a  bank  out  of  funds  and  securi- 
ties that  the  State  had  in  hand,  giving  it  power  to  lend  money 
on  both  real  and  personal  security.  The  act  constituting  the 
bank  was  passed  in  1812.  Its  capital  consisted  of  all  the 
odds  and  ends  of  assets  that  the  State  happened 

Bank  of  the          ^o  have  at  the  time,  including  United  States 

State  of  South 

Carolina.  stock,  shares  in  two  other  banks  and  various 

bonds  and  notes  due  to  the  State.  These 
things  realized  a  cash  capital  of  $102,546  in  1813,  which 
was  increased  to  $338,807  in  1815,  after  which  additions  to 
the  capital  were  made  by  the  State  from  time  to  time.  The 
faith  of  the  State  was  pledged  to  support  the  bank,  to  supply 
additional  funds,  and  to  make  good  all  its  losses.  All  State 
money  was  to  be  deposited  in  and  paid  out  of  the  bank. 
The  president  and  directors  were  to  be  elected  annually  by 


SOME  NOTABLE  BANKS.  375 

the  Legislature,  and  were  declared  to  be  a  corporation.  The 
bank  might  receive  money  on  deposit  from  individuals,  do  a 
regular  banking  business,  discount  notes  with  two  or  more 
good  names  thereon  at  6  per  cent  interest,  lend  for  not  more 
than  one  year  on  mortgage  security  (with  power  to  confess 
judgment),  such  loans  not  to  exceed  one-third  the  value  of 
the  property,  and  not  to  be  more  than  $2000  to  one  person, 
the  interest  to  be  7  per  cent  payable  in  advance.  Mortgage 
loans  might  be  continued  by  the  directors  after  they  became 
due,  on  condition  that  one-tenth  of  the  principal  should  be 
paid  each  year.  Money  loaned  on  mortgage  was  to  be 
apportioned  among  the  election  districts  according  to  the 
number  of  members  of  the  Legislature  in  said  districts. 

The  debts  of  the  bank  were  not  to  exceed  twice  the  capital 
over  and  above  the  deposits,  and  circulating  notes  might  be 
issued  without  other  limit  than  this.  No  other  bank  in  the 
State  should  be  allowed  to  issue  notes  smaller  than  $5,  and 
no  body  corporate  or  politic  was  allowed  to  issue  notes  except 
banks  regularly  chartered.  The  city  of  Charleston  had  some 
circulating  notes  outstanding  and  was  now 
required  to  call  them  in.  In  1814  the  Bank 
of  the  State  was  allowed  to  issue  notes  smaller 
than  $i  and  did  issue  some  as  small  as  6^  cents.  There 
were  some  private  individuals  issuing  notes  smaller  than  $i. 
In  1816  these  were  prohibited  also. 

Branches  of  the  bank  were  established  at  Columbia, 
Camden  and  Georgetown.  All  public  officers  were  required 
to  make  their  disbursements  by  checks  on  the  bank,  and  the 
bank  managed  the  public  debt  of  the  State. 

In  1819  the  president  and  directors  made  a  long  and  turgid 
report  to  the  Legislature,  arguing  that  since  the  object  of 
>anking  was  to  dispense  as  much  as  possible  with  the  use  of 
ic  precious  metals  it  would  be  wise  to  dispense  with  them 
iltogether.  "  It  becomes  necessary  to  inquire,"  they  said, 


376  REPRESENTATIVE  MONEY. 

"  whether  in  the  present  state  of  the  world  a  metallic  cur- 
rency sufficient  for  the  wants  of  our  currency  is  obtainable, 
and  whether  if  it  be  obtained  it  will  be  worth 
t^ie  necessary  cost ;  whether  in  fact  a  currency 
equally  good,  perhaps  better,  may  not  be 
established  without  any  of  those  sacrifices  which  our  country 
already  has  been  obliged  to  make  and  which  it  must  for  a 
long  while  continue  to  make  to  secure  this  fugitive  and 
evanescent  object."  They  thought  that  value  was  an  ideal 
thing.  They  recommended  that  all  money  should  be  issued 
by  the  government,  as  the  government  only  could  adjust  the 
quantity  to  the  needs  of  the  community.  They  had  entire 
confidence  in  the  sound  discretion  of  the  government ;  "  that 
sound  discretion  to  which  we  submit  our  lives,  our  liberty 
and  in  so  many  other  modes  our  property  itself."  After 
reiterating  these  ideas  at  dolorous  length  they  brought  a 
railing  accusation  against  the  Bank  of  the  United  States  for 
receiving  the  public  revenues  in  the  form  of  local  bank  notes 
and  then  presenting  them  for  payment. 

This  serves  to  show  that  men  may  be  good  practical  bank- 
ers while  lamentably  ignorant  of  the  principles  of  banking. 
The  Legislature  was  wiser.  It  took  no  notice  of  their 

communication. 

Large  Profits.  The  cash  capital  of  the  bank  at  various 

periods  and  the  rate  of  profit  were  as  follows : 

CASH  CAPITAL.  RATE  OF  PROFIT. 

1816 $444,973  16     per  cent. 

1817     .....        722,879  13      "       " 

1818 1,052,766  12      «       " 

1819 1,196,220  <2l/2  "        " 

1820 1,196,220  8^  » 

The  circulation  outstanding  in  1821  was  $921,916  and  the 
specie  on  hand  $328,000.  The  average  profits  from  1822  to 


SOME  NOTABLE  BANKS.  377 

1825  were  about  9  per  cent  per  annum.  In  18-25  a  committee 
of  investigation  reported  that  the  bank  had  bad  or  doubtful 
debts  amounting  to  $100,000  and  that  the  greater  portion 
of  these  were  loans  to  directors  or  their  personal  friends. 

The  question  of  admitting  private  shareholders  to  the  bank 
was  often  agitated  and  two  acts  for  that  purpose  were  passed 
by  the  Legislature  at  different  times  and  both  were  repealed 

before  any  action  was  taken  under  them.  In 
Various  Items.  1838  the  State  issued  $2,000,000  of  bonds  for 

the  rebuilding  of  Charleston  after  a  great  fire 
and  the  bank  loaned  the  money  on  mortgage  in  the  burnt 
district.  In  1840  a  law  was  passed  providing  that  all  banks 
that  should  suspend  specie  payments  should  pay  5  per  cent 
per  annum  on  their  circulation  to  the  State,  in  addition  to  all 
other  penalties  for  suspension.  In  1843  the  House  passed 
a  resolution  "  that  the  system  of  borrowing  money  upon  the 
public  faith  for  the  purpose  of  lending  out  the  same  to 
individuals  is  unsound  in  principle  and  dangerous  in  prac- 
tice." This  was  in  the  way  of  repentance  for  the  Charleston 
loan. 

In  the  same  year  the  bank  acknowledged  that  it  had  lost 
$473,000  in  bad  loans  although  it  had  earned  average  profits 
of  7  per  cent  after  charging  them  off.  This  report  startled 

the  Legislature  and  a  movement  was  made  to 
Bad  Debts.  put  the  bank  in  liquidation,  and  this  would 

have  been  done  but  for  the  engagements  that 
the  bank  had  entered  into  with  foreign  holders  of  the 
Charleston  fire-loan  bonds.  An  agent  was  sent  abroad  to 
consult  them,  and  when  they  said  that  they  had  always 
considered  the  bank  an  essential  element  in  the  bargain  the 
movement  was  dropped.  Complaints  were  frequent  that  the 
mortgage  loans  were  an  embarrassment  to  the  bank,  but 
while  they  were  "  slow  "  the  percentage  of  loss  on  them  was 
not  large. 


378  REPRESENTATIVE  MONEY. 

A  report  in.  1846  said  that  the  bank  could  maintain  a 
larger  circulation  in  proportion  to  its  capital  than  ordinary 
banks,  because  the  State  was  responsible  for  the  notes.  In 
1847  the  circulation  was  $1,460,000.  In  times  of  financial 
disturbance  the  notes  were  hoarded,  not  only  in  South 
Carolina,  but  in  the  neighboring  States  also.  The  notes  of 
this  bank  bear  a  close  resemblance  to  bills  of  credit,  which 
the  States  are  expressly  prohibited  by  the  constitution  from 
emitting.  They  were  issued  by  the  authority  of  the  State, 
by  officers  chosen  by  the  State,  and  were  intended  to  circulate 
as  money.  The  State  was  responsible  for  them  and  received 
the  entire  profit  from  their  emission.  Yet  in  an  analogous 
case,  Briscoe  vs.  the  Bank  of  the  Commonwealth  of  Kentucky?- 
the  Supreme  Court  held  that  inasmuch  as  they  were  issued 
by  a  corporation  which  had  goods  and  chattels  set  apart  for 
their  redemption,  and  which  could  be  sued 

State  Bank  Notes  for  breach  of  contract,  they  were  not  bills  of 

not  "Bills  of 

Credit."  credit  within  the  meaning  of  the  constitution. 

There  is  certainly  a  distinction  between  such 
bills  and  those  which  depend  upon  nothing  but  the  good 
faith  of  the  issuing  government.  Lawyers  at  the  present 
day  generally  sustain  the  opinion  of  the  court,  although 
Judge  Story  dissented.2  It  follows  a  fortiori  that  ordinary 
notes  of  State  banks  are  not  bills  of  credit  within  the  meaning 
of  the  constitution.  Another  reason  for  this  belief  is  that 
such  notes  were  in  existence  when  the  constitution  was 
formed  and  were  not  prohibited.  A  third  and  decisive 
reason  is  that  the  issuing  of  such  notes  did  not  depend  on 
State  authorization  at  all.  It  was  a  common-law  right  until 
restrained  by  statute. 

In  1848  an  official  report  on  the  affairs  of  the  bank  said 
that  it  had  received  and  paid  out  for  the  State  $28,000,000 

1  ii  Peters,  257. 

2  Morse  on  the  Law  of  Banks  and  Banking,  3d  ed.,  665. 


SOME  NOTABLE  BANKS.  379 

without  losing  a  cent,  that  it  had  never  suspended  specie 
payments  and  that  it  had  preserved  the  State's  credit  in  every 
emergency. 

The  foregoing  facts  are  culled  from  a  documentary  history 
of  the  bank  published  by  the  legislature  in  1848.  A  few 
facts  relating  to  its  subsequent  career  are  given  by  Mr. 
Knox.1 

In  1852  the  charter  of  the  bank  was  extended  to  1871. 
It  passed  safely  through  the  war  and  maintained  its  high 
character  during  that  trying  period.  It  preserved  its  capital 
intact,  paid  all  its  obligations  to  the  State,  to  private  depositors 
and  to  noteholders.  In  1870,  one  year  before 
the  expiration  of  its  charter,  the  legislature 
put  it  in  liquidation.  Its  history  is  exceptional 
in  the  fact  that  for  nearly  sixty  consecutive  years  it  was 
conducted  with  prudence,  honesty  and  pecuniary  profit 
without  the  spur  of  private  interest.  It  must  have  been  in 
the  charge  of  good  bankers  all  the  time. 

Equally  good  fortune  attended  the  steps  of  the  State  Bank 
of  Indiana  and  for  the  same  reason.  Its  success  was  due 
to  the  fact  that  it  was  always  in  the  hands  of  good  bankers. 
This  institution  was  in  some  respects  sui  generis,  and  hence 
calls  for  careful  study.  It  was  established  by  the  State  in 
1834,  with  a  capital  of  $1,600,000.  One-half  was  owned  by 
the  State  and  the  other  half  by  private  individuals,  but  the 
State  advanced  62^  per  cent  of  the  private  subscriptions  as 
a  loan  at  6  per  cent  interest,  taking  mortgage  security  and 
a  lien  on  the  shares  for  the  repayment.  Thus  the  State 
supplied  $1,300,000  at  the  beginning  and 
of  Indiana  private  persons  $300,000.  The  State  procured 

the  money  by  a  loan  negotiated  in  London, 
securities  issued  for  it  were  called  "bank  bonds,"  drawing 
interest  at  5  per  cent.     They  were  to  run  for  a  term  a  little 

1  In  Rhodes'  Journal  of  Banking,  October,  1892. 


380  REPRESENTATIVE  MONEY. 

longer  than  the  charter  of  the  bank  and  were  specially 
secured  by  the  State's  shares  in  the  bank  and  her  lien  on 
those  of  the  private  shareholders.  A  special  board  known 
as  "commissioners  of  the  sinking  fund"  had  charge  of  all 
matters  connected  with  the  State's  dividends,  all  interest 
payments  due  to  the  State  for  advances  to  private  share- 
holders, and  the  interest  payments  to  the  holders  of  the 
bank  bonds.  Thus  the  bank  bonds  bore  a  premium  during 
the  whole  term  of  their  existence,  although  the  general  credit 
of  the  State  was  at  one  time  seriously  impaired. 

The  charter  was  to  continue  twenty-five  years,  and  no 
other  banking  corporation  was  to  be  created  or  permitted  in 
the  State  during  that  time.  The  bank  was  to  consist  of  one 
parent  institution  at  Indianapolis  and  ten  branches.  Each 
branch  had  a  capital  of  $160,000.  The  parent  institution 
had  no  capital  under  its  immediate  control  and  performed 
none  of  the  details  of  the  business.  It  consisted  of  a  presi- 
dent and  board  of  directors  who  supervised,  examined,  and 
controlled  the  whole.  The  president  and  four  directors  were 
chosen  by  the  Legislature  to  hold  office  five  years,  and  one 
director  was  chosen  by  the  private  shareholders 

of  each  branch.  The  branches  were  managed 
Constitution. 

by  the  private  shareholders,  subject  to  the 
central  board  at  Indianapolis.  The  number  of  branches 
was  afterwards  increased  to  thirteen  by  additional  capital,  of 
which  the  State  contributed  one-half.  All  the  capital  was 
required  to  be  paid  in  specie,  and  was  actually  paid  in 
Spanish  and  Mexican  dollars.  The  earnings  of  each  branch 
belonged  to  its  own  shareholders  exclusively,  but  the  divi- 
dends were  declared  only  by  the  parent  bank.  Interest  on 
loans  unpaid,  whether  due  or  not  due,  could  not  be  included 
in  dividends.  Each  branch  was  liable  for  the  debts  of  every 
other  branch,  and  in  case  of  insolvency  must  pay  them 
within  one  year;  and  the  State  had  a  first  lien  on  the  assets 


SOME  NOTABLE  BANKS.  381 

of  any  failed  branch  for  the  reimbursement  of  its  stock. 
They  were  independent  of  each  other  as  to  assets,  but  were 
united  as  to  liabilities.  This  was  the  keystone  of  the  arch. 
It  had  the  effect  of  inducing  vigilance  on  the  part  of  all  the 
members  in  watching  each  other,  and  increasing  public 
confidence  in  the  stability  of  the  whole.  After  the  crisis  of 
1837  (in  which  it  suspended),  it  gradually  acquired  extraor- 
dinary credit,  and  was  as  little  questioned  in  Indiana  and 
the  neighboring  States  as  the  Bank  of  England  is  in  Great 
Britain  to-day. 

The    only    limit   to    its    issue    of    circulating    notes    was 
embraced  in  a  provision  that  the  debts  due  to  or  from  any 
branch  (except  deposits)  should  not  be  more  than  double 
the   capital   of   that   branch.      Theoretically, 
Noteslatmg          therefore,  each  branch  might  have  notes  out- 
standing to  double  the  amount  of  its  capital 
minus  any  debts  it  owed  to   other  banks.     Its  maximum 
circulation  was  $3,860,000  in  1852.     The  note  issues  were 
regulated  by  the  parent  bank  at  Indianapolis,  and  were  dealt 
out  from  that  place  exclusively.     They  were  usually  taken 
from  the  parent  bank  by  the  presidents  or  directors  of  the 
branches  traveling  on  horseback.   Mr.  McCulloch  (afterwards 
Secretary  of  the  Treasury),  was  president  of  the  Fort  Wayne 
branch.     He  says  :    "  Fort  Wayne  was  three  good  days'  ride 
from  Indianapolis,  mostly  through  the  woods.     For  fifteen 
years  I  made  this  journey  on  horseback  and 
alone  with  thousands  of  dollars  in  my  saddle 
bags,  without  the  slightest  fear  of  being  robbed, 
was  well  known  upon  the  road  and  it  was  well  known  that 
had  money  with  me  and  a  good  deal  of  it,  and  yet  I  rode 
mharmed  through  the  woods  and  stopped  for  the  night  at 

taverns  and  cabins  on  the  way  in  perfect  safety." 
The  bank  was  not  forbidden  to  lend  on  mortgage  security, 
id  in  the  first  few  years  of  its  existence  it  did  lend  in  that 


3S2  REPRESENTATIVE  MONEY. 

way  to  a  large  extent.  Experience,  however,  taught  the 
managers  that  such  loans,  although  usually  safe,  were  sluggish 
and  not  suited  to  a  commercial  bank.  Mortgage  loans  were 
accordingly  discarded,  but  loans  to  farmers  were  continued 
on  a  large  scale.  They  were  made  on  personal  security  and 
were  taken  up  by  bills  of  exchange  drawn  against  shipments 
of  produce.  No  branch  could  lend  money  on  the  security 
of  its  own  stock.  No  officer  or  director  could  borrow  on 
terms  different  from  the  public,  nor  could  they  endorse 
for  each  other  nor  could  they  vote  on  questions  where  they 
were  interested.  On  all  applications  for  loans  above  $500, 
a  majority  vote  of  five-sevenths  of  the  board 
was  necessary,  and  this  must  be  entered  on 
the  minutes  with  the  names  of  the  directors 
so  voting.  Directors  were  individually  liable  for  losses 
resulting  from  infraction  of  the  law,  unless  they  had 
voted  against  the  same  and  caused  their  votes  to  be  entered 
on  the  minutes,  and  had  notified  the  Governor  of  the 
State  of  such  infraction  forthwith,  and  had  published  their 
dissent  in  the  nearest  newspaper.  Any  absent  director  should 
be  deemed  to  have  concurred  in  the  action  of  the  board, 
unless  he  should  make  his  dissent  known  in  like  manner 
within  six  months.  Mr.  McCulloch  says  that  "  the  stock- 
holders of  each  branch  were  liable  for  the  debts  of  the  branch 
to  an  amount  equal  to  the  par  value  of  their  shares."  ]  This 
is  a  matter  of  importance,  and  the  statement  is  not  quite 
accurate.  The  charter  provided  that  the  insolvency  of  any 
branch  should  be  deemed  fraudulent  unless  the  contrary 
were  proved,  and  that  in  any  case  of  insolvency 
Double  Liability,  adjudged  to  be  fraudulent  the  directors  should 
be  liable  for  the  debts  without  limit,  and  that 
after  their  estates  were  exhausted  the  other  stockholders 
should  be  liable  for  an  amount  equal  to  their  shares  in 
1  Men  and  Measures,  p.  118. 


SOME  NOTABLE  BANKS.  383 

addition  to  the  amount  that  had  been  paid,  or  ought  to  have 
been  paid  thereon.  This  idea  was  evidently  borrowed  from 
the  charter  of  the  State  Bank  of  Boston,  Mass.1  The  first 
introduction  on  this  continent  of  the  "double  liability  clause" 
as  to  all  debts  of  a  bank,  so  far  as  I  have  been  able  to  discover, 
was  in  that  of  the  Gore  Bank  of  Hamilton,  Canada,  in  1835. 
It  had  been  strongly  recommended  by  the  Lords  of  Trade 
in  1833  as  a  feature  of  the  bank  charters  of  Upper  Canada, 
but  did  not  meet  with  favor  at  first. 2 

The  administration  of  the  bank  was  as  scientific  as  any 
part  of  it.  The  main  thing  in  banking  operations  is  to  have 
good  paper  maturing  within  short  periods.  In 
Management  order  to  check  any  tendency  to  bad  or  risky 
loans,  examinations  are  necessary,  and  here 
the  State  Bank  of  Indiana  was  well  served  from  first  to  last. 
"  As  no  notice  was  ever  given  of  the  time  when  these  exami- 
nations were  to  be  looked  for,"  says  Mr.  McCulloch,  "  no 
special  preparations  could  be  made  for  them  by  the  officers 
of  the  branches,  and  they  were  always  of  the  most  searching 
and  thorough  character.  So  searching  and  thorough  were 
they  that  fraud  or  mismanagement  could  hardly  have  escaped 
detection.  I  can  bear  testimony  to  the  intelligence,  the 
industry  and  honesty  which  were  displayed  in  the  examina- 
tions by  Samuel  Merrill,  the  first  president,  and  his  successor 
James  Morrison.  The  thoroughness  of  these  examinations 
did  much,  I  am  sure,  to  keep  the  business  of  the  branches 
in  a  safe  and  healthy  condition." 

Such  were  the  leading  features  of  this  renowned  bank.    It 
continued  until  the  expiration  of  its  charter  to  be  a  great  and 
beneficent  financial  institution,  highly  profit- 
able  to  its  shareholders  and  advantageous  to 
the  community.     The  State  realized  from  it, 
in  the  25  years  of  its  existence,  a  net  profit  of  $3,500,000, 

1  Pages  320-321.  2  Breckenridge,  pp.  55,  56. 


384  REPRESENTATIVE  MONEY. 

over  and  above  the  interest  paid  on  the  bank  bonds.  This 
money  became  a  part  of  the  State  School  Fund.  Speaking 
of  the  State's  loan  to  the  stockholders  of  the  Fort  Wayne 
branch,  Mr.  McCulloch  says :  "  The  profits  so  much  exceeded 
6  per  cent  that  the  loan  was  paid,  if  I  recollect  rightly,  seven 
years  before  the  expiration  of  the  charter  (during  which 
period  the  largest  profits  were  made),  and  the  borrowing 
stockholder  received  for  that  period  the  dividends  on  the  full 
amount  of  his  shares.  Nor  was  this  all.  At  the  winding  up 
of  the  business  of  the  branch  he  received  not  only  the  par 
value  of  the  stock,  but  an  equal  amount  from  the  accumulated 
surplus."  Another  account  says  the  profits  were  between 
12  and  14  per  cent  per  annum  besides  doubling  the  original 
capital.  Mr.  McCulloch  says  that  although  its  capital  was 
little  more  than  two  millions  its  loans  sometimes  amounted 
in  a  single  year  to  ten  or  fifteen  millions. 

Early  in  the  fifties  the  State  was  connected  by  railway  with 
the  East  and  began  to  grow  rapidly.  There  was  a  demand 
for  more  banks.  The  monopoly  feature  of  the  State  Bank's 
charter  became  insupportable.  In  a  new  constitution  adopted 
in  1851  a  clause  was  inserted  authorizing  the  Legislature  to 
pass  a  general  banking  law,  and  another  prohibiting  the 
State  from  becoming  a  shareholder  in  any  bank.  The  con- 
vention which  framed  the  constitution  refused 
tutionoTissi  to  authorize  the  extension  of  the  charter  of  the 
State  Bank,  but  did  not  prohibit  it.  The  first 
Legislature  which  assembled  after  the  ratification  of  the 
constitution  passed  the  free  banking  act  previously  men- 
tioned. The  monopoly  of  the  State  Bank  still  had  seven 
years  to  run,  but  the  directors  deemed  it  unwise  to  take  any 
legal  steps  to  enforce  their  rights.  It  turned  out  that  the 
new  banks,  although  disastrous  to  the  people,  were  not  in 
the  least  harmful  to  the  State  Bank,  whose  profits  during 
these  seven  years  were  the  largest  in  its  history. 


SOME  NOTABLE  BANKS.  385 

The  bank  was  put  in  liquidation  in  1859,  when  its  charter 
expired.  Although  the  directors  had  had  no  expectation  of 
continuing  the  business  and  had  taken  no  steps  to  that  end, 
certain  politicians  of  a  speculative  turn  had  conceived  the 
idea  of  getting  a  similar  charter  from  the  Legislature  in  order 
to  sell  it.  They  succeeded  in  doing  so.  The 

New  Bank  of         charter  of  the  "  Bank  of  the  State  of  Indiana  " 

the  State  of 

Indiana.  with  twenty  branches  and  an  authorized  capital 

of  $6,000,000  was  passed  by  the  Legislature 
in  1855,  was  vetoed  by  the  Governor,  but  was  passed  over 
his  veto.  It  was  almost  an  exact  copy  of  the  old  charter 
except  that  the  State  was  not  a  shareholder.  It  did  not 
require  the  deposit  of  securities  for  circulating  notes.  The 
owners  of  the  charter  then  opened  negotiations  with  the 
proprietors  of  the  expiring  bank  for  the  sale  of  it.  The 
negotiation  was  successful  and  Mr.  McCulloch  became  the 
president  of  the  new  bank.  It  began  operations  on  the  first 
of  January,  1857,  with  a  capital  of  $2,000,000,  which  was 
soon  increased  to  $3,000,000.  In  the  panic,  which  came  in 
the  autumn  of  that  year  "all  the  Eastern  banks,"  says  Mr. 
McCulloch,  "  except  the  Chemical  Bank  of  New  York,  which 
weathered  the  storm  twenty  years  before,  and  all  the  Western 
banks  except  the  Kentucky  banks  and  the  Bank  of  the  State 

of  Indiana,  suspended  specie  payments."  The 
Panic  of  1857.  latter  redeemed  its  notes  in  gold  throughout. 

Its  customers  did  not  ask  or  expect  gold  for 
ordinary  deposits.  It  was  a  part  of  the  common  law  of  banking 
in  the  West  at  that  time  that  persons  who  deposited  bank 
notes  should  draw  bank  notes,  and  this  custom  was  universally 
observed.  Under  the  circumstances  the  notes  of  the  Bank 
of  the  State  of  Indiana  during  the  panic  commanded  a 
premium  of  five  per  cent  over  the  notes  of  the  State  Bank  of 
Ohio,  a  really  solvent  institution,  temporarily  crippled  by  the 
failure  of  its  New  York  agent,  the  Ohio  Life  and  Trust  Co. 


386  REPRESENTATIVE  MONEY. 

The  career  of  the  Bank  of  the  State  of  Indiana  was  pros- 
perous until  the  ten  per  cent  tax  on  State  bank  notes  was 

imposed  by  Congress.  As  its  constitution 
Ensemble1"  could  not  be  adapted  to  the  national  banking 

system  it  went  into  voluntary  liquidation.  Its 
disappearance  was  a  loss  to  the  state  and  to  the  nation.  It 
lived  long  enough  to  prove  that  the  monopoly  feature  was 
not  essential  to  a  bank  possessing  the  character  and  credit 
which  it  enjoyed.  Considered  as  one  institution,  substantially, 
from  1834  to  1866,  it  was  a  monumental  bank,  of  which  the 
nation  may  well  be  proud,  and  fit  to  be  compared  with  the 
most  illustrious  that  the  world  has  ever  seen. 

B.  —  OWNED  BY  CITIZENS. 

The  State  Bank  of  Ohio  had  a  different  origin  and  was  of 

later  birth.     It  was  made  a  part  of  a  banking  law  of  wide 

scope  passed  in  1845.     It  seems  to  have  been 

StateBank  modeled  after  the   Indiana  law,   with  a  few 

oi  unio. 

differences.  The  State  of  Ohio  had  no  pecuni- 
ary interest  in  it.  There  were  a  number  of  banks  existing 
in  the  State  when  the  law  of  1845  was  passed,  and  the  law 
authorized  the  formation  of  others,  but  restricted  the  aggre- 
gate amount  of  capital  to  a  fixed  sum  and  appointed  commis- 
sioners to  parcel  it  out,  as  though  banking  were  a  necessary 
evil,  like  dynamite.  The  law  provided  that  any  number  of 
banks,  not  less  than  seven  then  existing,  or  to  be  organized 
thereafter,  might  become  branches  of  the  State  Bank  of  Ohio. 
The  latter,  like  the  State  Bank  of  Indiana,  was  a  mere  Board 
of  Control,  and  was  so  denominated  in  the  law. 

The  central  and  governing  idea  of  this  law  was  the  security 
of  the  note-holders.  Note  issuing  was  proportioned  to 
capital  in  the  following  manner:  any  branch  might  issue 
$200,000  of  notes  for  the  first  $100,000  of  capital;  $150,000 
of  notes  for  the  second  $100,000  of  capital;  $125,000  of 


SOME  NOTABLE  BANKS.  387 

notes  for  the  third  $100,000  of  capital;  $100,000  of  notes 
for  the  fourth  $100,000  of  capital,  and  $75,000  of  notes  for 
each  additional  $100,000  of  capital.  Each  branch  was 
required  to  deposit  with  the  Board  of  Control  ten  per  cent 
of  the  amount  of  its  circulating  notes,  either  in  specie  or  in 
bonds  of  the  State  of  Ohio  or  of  the  United  States,  as  a 
safety  fund  for  the  protection  of  the  holders  of  notes  of  any 

or  all  the  branches.  The  Board  of  Control 
ANotai  might  invest  any  money  belonging  to  the 

safety  fund  in  the  bonds  of  Ohio  or  of  the 
United  States,  or  in  mortgage  on  real  estate  in  the  county 
where  the  branch  was  situated,  worth  double  the  amount  of 
the  loan  exclusive  of  buildings  or  other  destructible  property. 
Each  branch  was  liable  for  the  circulating  notes,  but  not  for 
the  general  debts  for  the  other  branches.  In  case  of  the 
failure  of  any  branch  to  redeem  its  notes,  the  Board  of  Con- 
trol was  to  make  an  assessment  pro  rata  on  the  other 
branches,  and  reimburse  them  as  soon  as  the  assets  in  the 
safety  fund  could  be  disposed  of ;  and  then  the  safety  fund 
was  to  be  reimbursed  out  of  the  assets  of  the  failed  branch 
before  any  other  creditors  were  paid.  The  State  Bank  of 
Ohio  had  thirty-six  branches  and  was  highly  successful.  It 
was  justly  regarded  as  one  of  the  soundest  institutions  in 
the  country. 

One  of  the  notable  banks  existing  before   1850  was  the 
Wisconsin  Marine  and  Fire  Insurance  Company,  which  was 

started  by  George  Smith,  a  native  of  Scotland, 
Georgre  Smith.  at  Milwaukee,  in  the  year  1839.  It  had  a 

great  influence  in  the  Northwest  and  laid  the 
foundation  of  one  of  the  largest  private  fortunes  in  the 
world.  Mr.  Smith  was  born  in  the  rural  hamlet  of  Old 
Deer,  Aberdeenshire,  in  1809.  He  came  to  America  seeking 
his  fortune  in  1834.  That  year  found  him  at  Chicago,  then 
a  place  of  very  unpromising  appearance,  but  which  he 


388  REPRESENTATIVE  MONEY. 

judged  to  be  the  site  of  a  future  great  emporium.  Here  he 
invested  what  money  he  had  in  real  estate,  and  as  the  era  of 
land  speculation  which  culminated  in  the  panic  of  1837  was 
then  in  its  height  he  was  enabled  to  realize  large  gains  in  a 
very  short  time.  He  pocketed  his  profits  and 

Wisconsin  returned   to    Scotland.     The  panic   of    18^7 

Marine  and  Fire 

Insurance  Co.        threw    back   on    his    hands   so   much   of   his 

Chicago  property  that  he  came  out  again  to 
look  after  it,  bringing  with  him  two  friends  named  Strachan 
and  Scott,  who  were  associated  with  him  in  both  real  estate 
and  banking  many  years.  In  1838  Smith  took  a  copy  of 
the  charter  of  the  Chicago  Marine  and  Fire  Insurance  Co. 
to  Wisconsin  and  got  the  Territorial  Legislature  to  reenact 
it.  The  bill  became  a  law  February  28,  1839.  The  company 
was  organized  and  directors  were  chosen  a  few  months  later. 
Among  them  was  Alexander  Mitchell,  another 
Alex.  Mitchell,  young  Scotchman,  who  had  had  some  exper- 
ience in  the  banking  business,  and  whom 
Smith  had  induced  to  come  to  America.  The  first  stock 
subscription  was  for  4052  shares,  on  which  $2  per  share 
was  paid  in  order  to  effect  the  organization.  It  appears, 
however,  that  $225,000  was  brought  together  soon  afterward, 
one-half  of  which  was  contributed  by  persons  residing  in 
Scotland  and  the  other  half  by  Smith,  Strachan,  Scott,  and 
Mitchell. 

The  charter  contained  no  banking  powers,  but  on  the 

contrary  a  definite  prohibition  of  them.     It  was  intended  by 

the   Legislature  to  be  a  charter  for  fire,  marine,  and  life 

insurance  merely.     It  provided,  however,  that 

Odd  Slater7'8     "tm>s   company  may  likewise   receive  money 

on  deposit  and  loan  the  same  on  bottomry, 

respondentia,  or  other    satisfactory    security  —  may    employ 

such  capital  as  may  belong  to,  or  accrue  to  said  company,  in 

the    purchase    of    public    or    other   stock,   or  in   any   other 


SOME  NOTABLE  BANKS.  389 

moneyed  transactions,  or  operations  for  the  sole  benefit  of 
said  company;  provided  nothing  herein  contained  shall  give 
said  company  banking  privileges."  Another  clause  provided 
that  if  the  company  should  receive  on  deposit  any  bank 
notes,  and  lend  them,  it  should  endorse  them  by  the  signature 
of  its  president  and  redeem  them  in  specie  in  case  the 
issuing  bank  should  fail. 

Although  some  of  the  functions  of  banking  were  embraced 
in   the   charter,    the    express    prohibition    of 

Circulating  Cer-  banking  privileges  meant  that  the  company 
tificates  of 

Deposit.  should  not  issue  circulating  notes.     Neverthe- 

less, the  company  began  almost  immediately 
to  issue  certificates  of  deposit  in  the  similitude  of  bank  notes 
in  this  form : 

^    (10)  Capital,  $500,000.  Incorporated  1839, 

fe  No.  (Cut  of  Ceres.)  36420. 

£       WISCONSIN   MARINE  AND  FIRE  INSURANCE  CO. 

s-i 

'&         This  is  to  certify  that  J.  C.  BATES  has  deposited  with 

*o  this  Institution  Ten  Dollars  which  will  be  paid  on  demand 

"3  to  bearer.      Milwaukee,  June  jrd,  1850. 

^  ALEX.  MITCHELL,  Secy.  GEO.  SMITH,  Pres.     (10). 

The  certificates  of  deposit  met  a  popular  want.  They 
were  issued  in  denominations  of  $i,  $3,  $5,  and  $10.  They 
were  to  be  found  in  the  people's  pockets  all  over  Wisconsin, 
Illinois,  Iowa,  Missouri,  and  Michigan,  and  were  known 
everywhere  as  "George  Smith's  money."  They  eventually 
reached  a  circulation  of  $1,470,235.  All  this  was  before  the 
day  of  railroads  in  the  West. 

Mr.  Smith  understood  his  business  perfectly  and  omitted 
nothing  to  keep  his  institution  in  good  credit.  He  not  only 
redeemed  the  certificates  at  par  in  specie  at  the  parent  office 
in  Milwaukee,  but  he  established  agencies  at  Chicago, 


390  REPRESENTATIVE  MONEY. 

Detroit,  Buffalo,  Galena,  and  St.  Louis,  where  he  redeemed 
them  in  New  York  exchange,  at  the  current  rate. 

The  Legislature  could  not  avoid  taking  notice  of  this 
exercise  of  " banking  privileges"  in  the  face  of  an  express 
prohibition.  At  the  Session  of  1843  a  committee  was 
appointed  to  investigate  the  company.  A 

reP°rt  was  made  in  the  following  year-   The 

finances  of  the  company  were  found  to  be  in  a 
sound  condition,  but  it  had  issued  upwards  of  $52,000  of 
certificates  of  deposit  in  the  form  and  likeness  of  bank  notes 
in  violation  of  a  clause  of  its  charter.  Consequently  the 
committee  recommended  that  the  charter  be  repealed. 

A  few  days  later,  Alexander  Mitchell,  the  Secretary  of  the 
company,  presented  to  the  Legislative  Assembly  a  communi- 
cation denying  the  power  of  the  Legislature  to  repeal  the 
charter  and  contending  that  the  company  had  been  guilty  of 
no  violation  of  law.  The  question  of  violation  of  charter, 
he  said,  could  only  be  determined  by  the  courts.  The 
communication  was  referred  to  a  committee  which  presented 
a  majority  and  a  minority  report.  The  majority  sided  with 
Mr.  Mitchell  and  held  that  a  court  of  law  was  the  proper 
place  to  determine  the  question  whether  the  charter  had 
been  violated,  but  it  did  not  recommend  the  beginning  of  a 
suit  to  test  the  matter.  The  minority  recommended  a  joint 
resolution  ordering  that  such  a  suit  be  instituted  at  once. 
There  was  an  exciting  debate  on  the  resolution,  which  was 
finally  defeated  by  a  majority  of  two.1 

In  the  year  1846  the  Legislature  repealed  the  charter  by 
a  decisive  vote  in  both  branches,  but  failed  to  pass  a  resolu- 
tion instructing  the  Attorney-General  to  institute  proceedings 
for  forfeiture.  The  only  notice  that  the  company  took  of 
the  repealing  act  was  to  issue  a  circular,  saying:  "The 
recent  action  of  the  Legislature  of  the  Territory  in  reference  to 

1  History  of  Wisconsin  Territory,  by  Moses  M.  Strong. 


SOME  NOTABLE  BANKS.  391 

this  institution  will  not  in  any  way  affect  its  rights  or  inter- 
rupt its  business.     This  notice  is  deemed  proper  for  the  infor- 
mation and   protection  of  the   holders  of   its 
Not  Successful,      paper,  which  will  be  redeemed  by  its  correspon- 
dents in  New  York,  Buffalo,  Detroit,  Chicago, 
Galena,  and  St.  Louis,  as  heretofore."     The  circulation  of 
the  company  had  now  increased  to  $180,372,  and  went  on 
increasing  with  great  rapidity  till  it  reached  the  maximum 
sum  already  mentioned. 

There  were  repeated  runs  on  Smith's  bank  for  specie  with 
the  avowed  intention  of  breaking  it,  but  they  were  always 
met  with  abundant  bags  of  coin.  The  most  notable  run  was 
in  1849.  On  Thanksgiving  day  Mr.  Smith's 
office  in  Chicago  was  closed  as  usual. 
Arrangements  had  been  made  by  rivals  in 
Chicago  and  Detroit  to  send  a  large  lot  of  notes  to  Milwaukee 
for  redemption  simultaneously,  and  in  order  to  secure 
cooperation  by  others,  word  was  sent  out  without  any 
explanation :  "  George  Smith's  bank  in  Chicago  closed  its 
doors  to-day."  This  caused  a  real  alarm.  There  was  no 
telegraph  in  those  days  and  no  means  of  correcting  false 
rumors.  It  was  a  foul  blow.  When  the  news  reached 
Milwaukee  the  run  began.  It  lasted  two  days  and  the 
redemption  of  the  notes  was  continued  until  after  dark  each 
night.  One  hundred  thousand  dollars  in  specie  was  sent  to 
the  bank  from  Chicago,  but  before  it  arrived  the  frightened 

depositors  at  Milwaukee  had  begun  to  return 
Successfully  ^  [t  the  goM  and  silyer  ^^  they  had  drawn 

out.  In  fact  the  bank  never  suspended  specie 
payments  while  Smith  or  Mitchell  controlled  it.  "During 
this  fruitful  period  (1850  to  1860)  of  immigration,  settlement, 
rapid  growth  and  marvelous  development  of  the  resources  of 
this  great  commonwealth,  the  Wisconsin  Marine  and  Fire 
Insurance  Company  was  able,  in  spite  of  a  dubious  charter 


392  REPRESENTATIVE  MONEY. 

and  hostile  legislation,  to  supply  all  the  channels  of  money 
circulation  in  the  Northwest  and  in  the  valley  of  the 
Mississippi,  with  a  constantly  increasing  stream  of  currency, 
the  integrity  of  which  remained  to  the  last  absolutely 
unquestioned."1  The  notes  of  this  institution  are  among  my 
earliest  recollections. 

Let  us  trace  the  course  of  any  given  sum  of  George  Smith's 

money,  say  $10,000.     He  discounts  the  promissory  note  of 

a   wheat  buyer,    Mr.   A.   by  writing   $10,000 

Advantages  of       (minus  the  interest),  opposite  A's  name  in  the 

"George  Smith's   £ 

Money."  bank  s  ledger,  and   making  a    corresponding 

entry  in  A's  passbook.  That  becomes  A's 
deposit  and  the  bank's  liability.  The  act  of  writing  is  ipso 
facto  the  issuance  of  the  bank's  credit.  It  is  immaterial  to 
the  nature  of  the  transaction  whether  A.  exercises  his  right 
by  handing  his  checks  to  various  people  or  by  drawing  the 
whole  amount  in  circulating  notes,  but  in  fact  he  will  draw 
notes,  because  the  people  from  whom  he  buys  wheat  cannot 
use  bank  checks.  He  disburses  them  among  farmers,  who 
pay  them  out  to  country  store-keepers,  to  farm  laborers, 
teamsters,  school  teachers,  clergymen,  doctors,  etc.  By 
-and  by  they  reach  the  hands  of  the  city  merchant  who 
needs  to  make  remittances  to  New  York  and  Boston.  He 
takes  the  notes  to  Smith  and  gets  drafts  on  those  cities 
at  the  current  rate  of  exchange.  It  is  no  advantage  for 
him  to  draw,  gold  for  the  notes,  because  he  cannot  send 
it  to  New  York  and  Boston  as  cheaply  as  he  can  buy  Smith's 
drafts. 

Who  gets  the  profit  ?  First,  Smith  gets  it,  but  he  does 
not  get  all  of  it.  The  farmers  would  have  received  gold  for 
their  wheat  if  they  had  not  taken  Smith's  notes;  but  they 
would  have  been  obliged  to  wait  till  the  wheat  could  be  sent 
to  the  Eastern  market  and  the  proceeds  returned,  or  if  they 

i  Hadden. 


SOME  NOTABLE  BANKS.  393 

did  not  wait,  somebody  must,  and  this  somebody  must  needs 
be  reimbursed  out  of  the  crop  for  waiting. 

Again,  if  the  proceeds  of  the  crop  came  back  in  gold,  it 
could  not  come  back  in  the  form  of  ploughs,  axes,  nails  and 
other  goods,  this  being  the  preferable  form.  Thus  while 
Smith's  profits  were  large,  indeed  disproportionately  so,  he 
did  not  alone  reap  the  advantages  of  a  paper  medium  of 
exchange,  which  was  sound  in  fact  although  unsound  in 
principle.  It  was  sound  in  fact  because  Smith  was  a  genius 
in  his  profession.  It  was  unsound  in  principle  because  it 
was  not  accompanied  by  safeguards  to  protect  the  public 
against  knaves  and  fools,  of  whom  the  Northwest  afterwards 
had  a  large  experience. 

George  Smith's  money  was  an  elastic  currency.  There 
was  no  limit  to  his  issues,  except  his  ability  to  redeem 
them.  Within  this  limit  he  discounted  all  the  paper  that 
he  considered  good.  He  gave  his  own  paper  payable  on 
demand  for  that  of  merchants  payable  at  a  fixed  time.  His 
own  paper  passed  from  hand  to  hand  and  might  stay  out  a 
whole  year.  In  the  fall,  when  the  crops  began 

to  move> there  was  no  lack  of  money  for  legit- 
imate trade,  because  it  was  as  easy  to  put  out 
these  certificates  at  one  time  as  at  another.  In  the  winter, 
when  lake  navigation  was  closed  the  certificates  answered  all 
the  purposes  of  a  local  circulating  medium.  In  the  spring, 
when  the  steamboats  began  to  move,  bringing  new  settlers 
and  cargoes  of  goods,  the  certificates  came  back  to  head- 
quarters mainly  for  the  purchase  of  New  York  drafts,  after 
which  they  took  their  usual  round  again. 

Mr.  Smith  retired  to  his  native  land  in  1860  with  ten 
million  dollars,  and  powers  of  acquisition  unimpaired.  From 
rumors  that  have  reached  me  from  time  to  time  I  judge  that 
when  his  estate  comes  before  the  court  of  probate  his  neigh- 
bors will  be  astounded  at  its  magnitude.  He  is  still  living 


394  REPRESENTATIVE  MONEY, 

in  a  frugal  way  at  the  Reform  Club  in  London,  where  I  met 
him  a  few  years  ago.  His  club  name  is  "  Chicago  Smith." 

In  1842  the  State  of  Louisiana  passed  a  banking  law  which 
was,  in  nearly  all  respects,  a  model  for  other  States  and 
countries. 

The  principal  features  were  the  requirements  (i)  of  a 
specie  reserve  equal  to  one-third  of  all  its  liabilities  to  the 
public  ;  (2)  the  other  two-thirds  of  its  liabilities  to  be  repre- 
sented by  commercial  paper  having  not  more  than  ninety 
days  to  run  ;  (3)  all  commercial  paper  to  be  paid  at  maturity; 
and  if  not  paid,  or  if  an  extension  were  asked  for,  the  account 
of  the  party  to  be  closed  and  his  name  to  be  sent  to  the  other 
bank  as  a  delinquent;  (4)  all  banks  to  be  examined  by  a 
board  of  State  officers  quarterly  or  oftener; 

Art JfXfSJ"11*  (5)  bank  directors  to  be  individually  liable  for 
all  loans  or  investments  made  in  violation  of 
the  law,  unless  they  could  show  that  they  had  voted  against 
the  same  if  present;  (6)  no  bank  to  have  less  than  fifty  share- 
holders, having  at  least  thirty  shares  each ;  (7)  any  director 
going  out  of  the  State  for  more  than  thirty  days,  or  absenting 
himself  from  five  successive  meetings  of  the  board,  to  be 
deemed  to  have  resigned,  and  his  vacancy  to  be  filled  at 
once  ;  (8)  no  bank  to  pay  out  any  notes  but  its  own  ;  (9)  all 
banks  to  pay  their  balances  to  each  other  in  specie  every  Satur- 
day, under  penalty  of  being  immediately  put  in  liquidation. 

This  law  allowed  some  loans  to  be  made  on  mortgage 

security,  but  it  restricted  such  loans  to  the  bank's  capital. 

No  part  of  the  deposits  could  be  lent  except  on  commercial 

paper  maturing  within  ninety  days.     The  Louisiana  Bank 

Act  of  1842  was  eminently  scientific.     It  was 

plf£ientifiC          the  first  law  Passed  by  anY  State  requiring  a 

definite    amount    of    specie  to  be  kept   as   a 

reserve.     The  Louisiana  law  required  no  pledged  security 

for  the  circulating  notes  of  banks,  nor  did  it  put  any  limit  on 


SOME  NOTABLE  BANKS.  395 

the  amount  of  their  issues.  All  this  was  covered,  and  amply 
covered,  by  requiring  thirty-three  per  cent  of  specie  against 
all  liabilities,  whether  deposits  or  notes,  the  balance  of  the 
assets  to  be  in  mercantile  paper  having  not  more  than  ninety 
days  to  run. 

Under  this  law,  Louisiana  became  in  1860  the  fourth  State 
in  the  Union  in  point  of  banking  capital  and  the  second  in 
point  of  specie  holdings.  I  think,  however,  that  the  require- 
ment of  a  thirty-three  per  cent  reserve  of  coin  (or,  as  we  say 
now,  of  "  lawful  money  ")  was  excessive,  and 
that  the  twenty-five  per  cent  in  larger  cities 
and  fifteen  per  cent  in  other  places,  required 
of  national  banks,  is  ample.  It  is  a  matter  of  history  that  the 
Louisiana  Bank  Act  of  1842  was  strictly  and  intelligently 
enforced  until  the  city  of  New  Orleans  was  captured  during 
the  civil  war.  None  of  these  banks  suspended  in  the  panic 
of  1857.  Their  fidelity  to  engagements  was  their  first  consid- 
eration. Mr.  McCulloch  says : 

"  In  closing  what  I  have  to  say  about  banking  in  Indiana 
I  cannot  forbear  to  refer  to  the  action  of  the  New  Orleans 
banks  towards  their  Northern  correspondents  at  the  outbreak 
of  the  civil  war.  The  Southern  branches  [of  the  Bank  of  the 
State  of  Indiana]  had  large  dealings  with  men  who  were 
engaged  in  the  Southern  (Mississippi)  trade,  and  when 
measures  were  being  instituted  for  the  secession  of  Louisiana 
from  the  Union,  and  indeed  after  the  ordinance  of  secession 
had  been  adopted,  these  branches  had  large  cash  balances 
and  large  amounts  of  commercial  paper  in  the  New  Orleans 
banks.  Against  the  remonstrances  of  the  secession  leaders, 
and  in  disregard  of  threatened  violence,  these  cash  balances 
and  the  proceeds  of  the  commercial  paper  as  it  matured  were 
remitted  for,  according  to  directions  —  not  a  dollar  was  with- 
held. No  more  able  and  honorably  conducted  banks  existed 
in  the  Union  than  were  those  of  New  Orleans  before  the  war 


: 


396  REPRESENTATIVE  MONEY. 

nor  was  mercantile  honor  anywhere  of  a  higher  tone  than  in 
that  city."  l 

„  The  most  celebrated  bank  in  the  United  States,  although 
not  the  most  important,  is  the  Bank  of  North  America  at 
Philadelphia.  Its  fame  is  derived  from  its 
AraricaN°rtl1  Patriotic  origin.  It  does  not  illustrate  the 
principles  of  banking  in  any  special  way.  It 
was  chartered  by  the  Continental  Congress  in  1782  at  the 
instance  of  Robert  Morris,  Superintendent  of  Finance.  The 
continental  currency  was  at  its  last  gasp,  having  caused,  as 
Morris  said,  "infinite  private  mischief,  numberless  frauds 
and  the  greatest  distress."  He  rightly  conceived  that  a 
bank  conducted  on  true  principles  might  be  of  great  service 
to  both  government  and  people,  and  so  it  turned  out.  By 
establishing  a  credit,  which  was  made  possible  by  the  lucky 
arrival  of  $470,000  specie  from  France,  which  Morris  lodged 
in  the  bank,  it  was  enabled  to  make  large  advances  to  the 
government  for  the  purchase  of  army  supplies.  As  some 
doubt  existed  as  to  the  validity  of  a  charter  from  Congress, 
the  bank  applied  to,  and  received  one  from,  the  State  of 
Pennsylvania. 

After  the  termination  of  the  war  the  bank  became  very 
prosperous,  paying  dividends  of  14  per  cent  per  annum. 
These  gains  prompted  the  starting  of  another  bank  in  Phila- 
delphia in  1784,  but  the  Bank  of  North  America  headed  off 
the  movement  by  enlarging  its  own  capital  and  taking  in  the 
new-comer.  In  the  following  year  the  "  debtor  class  "  took 
umbrage  at  the  bank's  practice  of  requiring  its  maturing 
paper  to  be  paid  promptly.  A  petition  was 
sent  *n  ^rom  Chester  County  charging  usury, 
extortion,  favoritism,  harshness  to  debtors 
and  the  possession  of  undue  political  and  commercial 
influence,  and  praying  that  its  charter  might  be  annulled. 
1  Men  and  Measures,  pp.  138,  139. 


BANKING  IN  THE  FIFTIES.  397 

Strange  to  say,  this  petition  was  granted  by  the  Legislature. 
The  charter  was  repealed  on  the  $d  of  September,  1785, 
within  three  years  of  the  time  that  the  bank  had  rendered 
inestimable  services  to  the  patriot  cause  in  the  Revolution. 
The  bank  protested  that  the  charter  was  irrepealable,  and 
continued  its  business,  but  took  steps  to  obtain  a  charter 
from  Delaware,  with  the  intention  of  transferring  itself  to 
Wilmington.  Such  a  charter  was  granted  early  in  1786. 
Then  Pennsylvania,  fearing  lest  it  should  lose  the  very 

thing  that  it  had  tried  to  get  rid  of,  granted  a 
And  reenacted.  new  charter  to  the  bank  in  1787,  under  which 

it  continued  till  the  national  banking  law  was 
passed.  It  declined  at  first  to  enter  the  National  system 
because,  under  the  rules  adopted  by  Secretary  Chase,  it 
would  have  been  obliged  to  change  its  name.  But  a  dispen- 
sation was  granted  to  it,  on  account  of  its  illustrious  origin, 
to  come  in  without  such  change.  The  Bank  of  North 
America  is  now  one  hundred  and  thirteen  years  old,  and  it 
has  passed  its  semi-annual  dividend  only  five  times.  *  Of 
course  it  must  have  had  an  unbroken  succession  of  good 
managers.1 

CHAPTER  XV. 
BANKING  IN  THE  FIFTIES. 

THE  heterogeneous  state  of  the  currency  in  the  fifties  can 
be  best  learned  from  the  numerous  bank-note  reporters  and 
counterfeit  detectors  of  that  period.     It  was 
the  aim  of  these  Publications  to   give   early 
and  correct  information  to  enable  the  public 
to  detect  spurious  and  worthless  bank  notes,  which  were  of 

1  A  history  of  the  Bank  of  North  America  down  to  1882  has  been 
written  by  Lawrence  Lewis,  Jr.  An  interesting  account  of  its  origin 
and  early  years  is  given  in  Sumner's  "Financier  and  Finances  of  the 
American  Revolution." 


398  REPRESENTA  TIVE  MONE  Y. 

various  kinds,  viz.  :  i.  Ordinary  counterfeits.  2.  Genuine 
notes  altered  from  lower  denominations  to  higher  ones.  3. 
Genuine  notes  of  failed  banks  altered  to  the  names  of  sol- 
vent banks.  4.  Genuine  notes  of  solvent  banks  with  forged 
signatures.  5.  Spurious  notes,  as  of  banks  that  had  no 
existence.  6.  Spurious  notes  of  good  banks,  as  2o's  of  a  bank 
that  never  issued  2o's.  7.  Notes  of  old,  closed  banks  still 
in  circulation. 

The  number  of  counterfeit  and  spurious  notes  was  quite 

appalling.  Nicholas's  Bank-Note  Reporter 
A  Specimen.  <  had  5400  separate  descriptions  of  counterfeit, 

altered  and  spurious  notes.  There  were  thirty 
counterfeits  of  the  notes  of  the  Bank  of  Delaware,  described 
in  Nicholas's  Reporter  for  November,  1858,  thus  : 

BANK  OF  DELAWARE,  WILMINGTON. 

5's,  spurious,    vignette  blacksmith. 

5's,  spurious,         "  shield  between  two  females. 

5's,  altered,  "  Indian  and  a  man. 

5's,  spurious,         "  rail  cars,  etc.,  female  on  right. 

5's,  imitation,        "  State  arms,  Wm.  Penn  on  left. 

5's,         "  "  man  in  sitting  position  and  wheel  on  side. 

5's,         "  "  Indian  on  rock,  locomotive  and  cars. 

5's,  spurious,         "  female,  sailor,  shipping. 

5's,  altered,  "  Mercury  recumbent,  sailor. 

5's,  altered,  "  Indian,  man,  separated  by  shield. 

5's,  spurious,         "  three  females,  with  key,  safe,  etc. 

5's,  lo's,  2o's,  "  man  cutting  grain,  some  have  man  offer- 
ing bag  of  money  to  female,  others  vig. 
man  in  car,  tools. 

lo's,  spurious,         "  boy,  girl,  steamer. 

ID'S,  altered,  "  marine  view,  ship,  etc. 

ID'S,  letter  A,          "  a  landscape  with  cows,  etc. 

lo's,  spurious,         "  Declaration  of  Independence. 

ID'S,        "  "  three  cows, 

lo's,  2o's,  5o's,  zoo's,  a  ship,  schooner  and  steamboat. 


BANKING  IN  THE  FIFTIES.  399 

In  addition  to  these  there  were  a  counterfeit  i,  three 
counterfeit  2's,  two  2o's,  and  one  50  —  in  all  thirty  on  one 
bank. 

The  known  counterfeits  of  the  Bank  of  Kentucky,  Louis- 
ville, were  three  I's,  two  2Js,  two  3*5,  one  4,  two  5*5,  four 
ID'S,  seven  2o's,  four  50*3,  two  zoo's,  and  one  500,  twenty- 
eight  in  all.  The  same  number  were  catalogued  of  the  State 
Bank  of  Ohio,  viz.,  four  I's,  five  2Js,  two  3*5,  four  5*5,  nine 
ID'S,  two  2o's,  one  50,  and  one  100,  with  the  remark 
appended  to  the  last :  "  Bank  never  issued  any."  There  were 
sixteen  counterfeits  of  the  Mechanics  Bank,  of  New  Haven, 
Conn.,  five  of  which  were  alterations  and  one  made  by 
photography. 

Descriptions  of  the  latest  counterfeits  were 
Latest  News.        inserted   conspicuously  on   the   first  page   of 
each  number.     Thus  the  first  page  of  Thomp- 
son's Reporter  for  June   n,   1857,  had  the  following  warn- 
ings, fourteen  in  number : 

LATEST  COUNTERFEITS. 

ID'S  on  the    MASSASOIT   BANK,  Mass.,    vignette   boat  builders. 

TEN  across  the  right  end  —  two  lo's  and  Washington   on 

the  left  —  poor  affair  ;  unlike  genuine. 
2's  on  the  FARMER'S  BANK,   Bridgeport,  Conn.,  vignette  cattle 

in  pasture  —  portrait  of  Harrison  on  the  right  of  vignette,  2 

on  the  left  —  figure  2  and  TWO  in  upper  right  corner,  the 

same  on  lower  right  corner. 
5's  on  the  MONROE  BANK,  Rochester,  N.  Y.,  vignette  a  spread 

eagle  on  a  shield. 
ID'S  on   the    PEOPLE'S    BANK,    N.   Providence,   R.   I.,  vignette 

three    mechanics  at   work  :  two  females  on  the  right  ;  ship 

on  the  left. 
I's  on  the  ORANGE  BANK,  N.  J.,  are  said  to  be  in  circulation 

—  an  imitation  of  the  old  plate  ;  vignette  an  angel  holding 

up  a  curtain. 


400  REPRESENTATIVE  MONEY. 

2o's  on  the  MARKET  BANK,  New  York   City,  raised  from  i  's  ; 

vignette  drove  of  cattle  —  genuine  has  an  eagle  for  a  vignette. 
5's  on  the  CLINTON  BANK,  Connecticut,  raised  from  r's  ;  vignette 

train  of  cars  —  female  with  sword,  etc.,  and  figure  I  on  the 

right.     ONE  and  domestic  scene  on  the  left. 
3's  on  the   VILLAGE   BANK,    North    Danvers,    Mass.,   vignette 

train   of   cars   and   figure  j   on   the   left  —  large    figure  3, 

female  and  scrolls  on  the  right, 
lo's  on  the  CHEMUNG  CANAL  BANK,  New  York,  raised  from  I's, 

vignette  a  train  of  cars. 
5's  on  the  UNION   BANK,   Boston,  Mass.,  vignette  letter   V  on 

which  is  the  portrait  of  five  persons. 
3's  on  the  NATIONAL  BANK,    Providence,  R.  I.,    vignette    an 

eagle  on  a  shield. 
2o's  on  the  NORTH   BANK  of   Boston,   Mass.,  altered,    vignette 

three  females,  eagle,  shield,  book,  etc.     XX  and  female  on 

the  right ;  XX,  a  steamship,  and  cars  on  the  left. 
6's  on  the  PLANTER'S  BANK,  North  Carolina,  vignette  an  eagle 

on  a  tree  ;   female   kneeling   and   reaping  on  the  right ;  Z. 

Taylor  and  6  on  the  left. 
5's  on  the  RAILROAD  BANK,  Lowell,   Mass.,   vignette  train  of 

cars  in  lower  left  half  of  the  note  ;  5  and  five  strips  of  lathe 

work  on  the  right. 

Extras  were  frequently  issued  by  the  publishers  giving 
descriptions  of  new  and  dangerous  counterfeits  or  containing 
important  information  like  the  following : 

July  i,  1859.  "The  Farmer's  and  Merchant's  Bank  of 
Tennessee  having  failed,  sharpers  have  altered  its  notes  to 
those  of  the  Martha's  Vineyard  Bank,  Mass.,  Oriental  Bank, 
New  York  City,  and  eight  others." 

August  Extra.  "Immense  quantities  of  counterfeits  on  the 
Oneida  County  Bank,  Utica,  N.  Y.,  are  afloat,  $6,400  having 
been  seized  by  the  police." 

August  9.  "I's,  2Js,  3's  and  5's  of  the  Wisconsin  Miner's 
Bank  are  in  circulation.  There  is  no  such  bank." 


BANKING  IN  THE  FIFTIES.  401 

August  27.  "  Notes  of  the  broken  Farmer's  Bank  of  Rhode 
Island  are  appearing  altered  to  other  Farmer's  Banks  in 
various  cities  and  States." 

New  eccentricities  were  constantly  making  their  way  into 
the  circulating  medium,  for  example  :  From  Nicholas,  No- 
vember 20,  1858.  "The  Maverick  Bank, 
Incidents.  Boston,  is  troubled  by  the  reappearance  of  its 

notes  with  burned  edges,  a  lot  of  redeemed 
notes  having  been  imperfectly  burned  by  the  directors  in  an 
iron  furnace  owned  by  one  of  them."  Another  case  is  men- 
tioned in  New  York  City  of  a  note  carried  up  the  chimney 
flue  unburned  and  picked  up  in  the  street. 

"  Two  new  banks  have  been  started  in  the  District  of  Col- 
umbia, of  which  nobody  can  give  any  good  account.  The 
public  are  warned  not  to  take  their  notes  at  present." 

"Sackett's  Harbor  Bank,  Buffalo,  N.  Y.,  in  liquidation. 
The  Receiver  has  made  an  assessment  on  share-holders  which 
they  refuse  to  pay,  saying  that  the  assets  are  sufficient  to  pay 
all  liabilities,  without  calling  on  them." 

Tioga  County  Bank,  Pa.  "  A  contemporary  says  it  is  all 
right.  It  may  be  so  or  it  may  not." 

November  27,  1858.  Notes  of  the  Manufacturer's  Bank 
of  Elizabethport,  N.  J.,  are  quoted  at  50  cents,  "  but  are  worth 
more  if  the  holders  can  wait  till  the  stock  securities  are  dis- 
posed of  by  the  State  Treasurer,  which  is  done  in  most 
cases  at  his  own  pleasure  and  convenience." 

Bank  of  Charleston,  Va.  "The  notes  of  this  bank  are 
thrown  out  by  the  Southwestern  Bank  of  Wheeling,  Va. 
Look  out." 

"  General  Warning  to  the  Public :  The  notes  of  the  Tioga 
County  Bank  of  Pennsylvania  are  being  paid  out  in  Michigan 
and  Illinois.  We  do  not  buy  these  notes  at  any  rate  of  dis- 
count. The  bank  is  owned  by  the  same  parties  who  owned 
the  Macomb  County  Bank  of  Michigan  and  also  the  same 


402  REPRESENTATIVE  MONEY. 

parties  who  were  mixed  up  with  the  affairs  of  the  Litchfield 
Bank  of  Connecticut." 

"  Beware  of  Bank  Swindles :  We  understand  that  there 
exists  a  regular  organized  body  of  men  whose  sole  object  is 
to  get  up  bogus  banks  in  different  parts  of  the  country  and 
put  their  notes  in  circulation  in  Pennsylvania,  Indiana, 
Michigan  and  Wisconsin  by  the  ream." 

December  25.  "  Counterfeiters  have  become  possessed  of 
a  large  batch  of  the  worthless  notes  of  a  concern  called  the 
Thames  Bank,  Laurel,  Ind.,  and  have  commenced  altering  them 
to  represent  bills  of  various  good  banks  —  the  Thames  Bank 
of  Norwich,  Conn.,  and  the  Conway  Bank,  Mass.,  and  others." 

January  29,  1859.  "The  public  are  warned  against  notes 
of  the  Brownsville  Bank  and  Land  Co.,  Omaha,  Neb.  No 
such  bank  exists,  but  was  at  one  time  in  contemplation  and 
the  parties  interested  had  a  large  amount  of  notes  printed." 

A  correspondent  wants  to  know  whether  there  is  such  a 
bank  as  the  Southern  Bank  of  Georgia.  The  editor  believes 
there  is,  but  is  not  sure. 

February  12,  1859.  Failed  Warwick  Bank,  R.  I.  "A 
petition  of  the  Bank  Commissioners  of  the  State  says  that  the 
plates  of  the  bank,  which,  at  the  suggestion  of  the  Commis- 
sioners, had  been  lodged  in  the  American  Bank,  have  been 
removed  and  are  missing ;  that  a  large  amount  of  bills  have 
been  put  in  circulation  without  a  registry  of  the  issue  and 
without  security  therefor." 

Bank  of  Mobile.  "  Genuine  impressions  of  the  2o's,  50*5  and 
i oo's  of  this  bank  with  forged  signatures  are  in  circulation." 

There  was  a  publication  called  Monroe's  Descriptive  List 

of  Genuine  Bank  Notes.    This  contained  1323 

Other  Confusion,   separate    descriptions   of  notes.       Frequently 

the    banks    finding    their   notes    successfully 

counterfeited   would   destroy  the   plates  and  get  new  ones 

engraved,  with  the  result  of  having  two  and  sometimes  three 


BANKING  IN  THE  FIFTIES.  403 

kinds  of  genuine  notes  in  circulation  at  once,  which  of  course 
added  much  to  the  confusion. 

There  was  also  a  list  of  broken,  closed  and  worthless  banks. 
This  was  kept  standing  in  all  the  Reporters.  There  were 
40  such  credited  to  New  York  City  and  125  additional  to  the 
State. 

Rates  of  discount  on  all  bank  notes  that  were  not  at  par 
in  New  York  were  a  regular  feature  of  all 

Red^nf  tfonsr'S     the  ReP°rters-     The  Auditor  of  Illinois  adver- 
tised November  9,  1861,  that  he  would  redeem 
the  notes  of  the  following  banks  at  the  rates  here  named : 

American  Exchange  Bank,  Raleigh      ...  51 

Alisana  Bank,  Sullivan 

Bank  of  Chester 

Bank  of  Elgin 56 

Belvidere  Bank 

Commercial  Bank,  Palestine 56 

Farmer's  and  Trader's  Bank,  Charleston       .  50 

Farmer's  Bank,  New  Canton 61  ^ 

Hampden  Bank,  McLeansboro 58 

Morgan  Co.  Bank,  Jacksonville 52 

Railroad  Bank,  Decatur 55 

Rock  Island  Bank 50 

The  notes  of  one  hundred  and  seventeen  other  stock- 
secured  banks  of  Illinois  were  quoted  at  the  same  time  at 
rates  varying  from  40  to  90  cents  to  the  dollar. 

The  publication  of  Bank-Note  Reporters  was  no  new  trade. 
One  was  mentioned  by  Raguet  twenty  years  earlier  thus  : 
"Bicknall's  Counterfeit  Detector  and  Bank-Note  List  of 
January  i,  1839,  contains  the  names  of  54 
**  banks  that  had  failed  at  different  times ;  of  20 
fictitious  banks,  the  pretended  notes  of  which 
are  in  circulation ;  of  43  banks  besides,  for  the  notes  of 
which  there  is  no  sale;  of  254  banks,  the  notes  of  which 


404  REPRESENTATIVE  MONEY. 

have  been  counterfeited  or  altered;  and  1395  descriptions 
of  counterfeited  or  altered  notes  then  supposed  to  be  in 
circulation,  from  one  dollar  to  five  hundred." 

The  headquarters  of  uncurrent  money  in  the  fifties  was  at 
Chicago.  This  city,  the  principal  emporium  of  the  North- 
west, was  surrounded  on  all  sides  with  wild-cat  banks.  The 
State  of  Michigan,  as  we  have  seen,  had  produced  an 
extensive  litter  in  1837  and  the  succeeding  years.  Illinois 
had  supplied  two  State  banks  of  the  worst  kind,  which  were 
now  in  liquidation.  The  Gem  of  the  Prairie  newspaper  in 
November,  1851,  said  that  the  local  currency  of  Chicago 
consisted  of  the  notes  of  the  Wisconsin  Marine 

taSSttSi!8  &  Fire  Insurance  Co-  (George  Smith's  bank), 
the  Chicago  Bank  of  I.  H.  Burch  &  Co.,  the 
City  Bank  of  Bradley  &  Curtiss,  the  Southwestern  Plank 
Road  Co.,  the  Macomb  County  Bank  of  Michigan,  the  Os- 
wego  and  State  Line  Plank  Road  Co.,  and  the  Illinois  River 
Bank.  In  1852,  the  Chicago  banks  tried  to  circulate  their 
notes  alongside  of  George  Smith's,  but  they  would  not  stay 
out.  Being  at  par  they  were  promptly  returned  for  redemp- 
tion, while  Smith's  were  at  one  per  cent  discount  in  Chicago 
although  at  par  at  their  place  of  issue  in  Milwaukee.  Smith 
was  the  dominating  power.  He  set  the  pace  for  all  the 
other  banks  and  so  it  came  to  pass  that  one  per  cent  dis- 
count was  the  par  of  the  Chicago  money  market.  When  the 
free  banking  law  of  Wisconsin  was  passed,  which  compelled 
Smith's  bank  to  deposit  securities  for  its  issues  he  sold  out 
to  Alexander  Mitchell  and  turned  his  attention 

fheTwthwest!11    to   the    State   of   GeorSia  as  a  Place   for  the 
manufacture  of  currency  for  the  Northwest. 

He  bought  two  banks  there,  the  Atlanta  Bank  and  the  Inter- 
national Bank  of  Griffin.  With  the  notes  of  these  institutions 
Chicago  and  the  neighboring  country  were  plentifully  sup- 
plied. Smith  had  a  bank  of  deposit  and  discount  at  Chicago 


BANKING  IN  THE  FIFTIES.  405 

called  the  Bank  of  America,  where  he  discounted  commer- 
cial paper,  paying  his  Georgia  notes  therefor,  and  where  he 
sold  exchange  on  New  York  at  ^  Per  cent  premium.  That 
is,  he  redeemed  his  Georgia  issues  at  that  rate.  At  first  the 
other  Chicago  bankers  frowned  upon  the  new  style  of  cur- 
rency, but  Smith's  credit  was  so  well  established  that  people 
were  glad  to  get  anything  that  he  was  responsible  for.  The 
Chicago  Democrat  said : 

"  So  long  as  bills  of  sound  Georgia  banks  are  convertible 
into  New  York  exchange  at  ^  per  cent,  and  into  gold  at  no 
higher  rate  than  one  per  cent,  they  will  be  freely  taken  by 
all  business  men." 

When  Smith's  rivals  saw  how  things  were  going  they 
rushed  to  Georgia  also  and  bought  banks  whose  notes  they 
issued  at  Chicago.  And  so  it  came  to  pass  that  for  several 
years  the  bulk  of  the  circulating  medium  in  Chicago  and  the 
country  tributary  thereto  was  manufactured 

in  the  State  of  GeorSia-  The  toleration  of  a 
discount  on  bank  notes  at  the  very  counter 
over  which  they  were  paid  out  at  par  was  simply  idiotic,  yet 
it  was  a  part  of  the  common  law  of  banking  in  the  West  at 
that  time.  The  idea  that  no  bank  was  obliged  to  pay  gold 
for  anything  except  its  own  notes  was  so  general  that  it  re- 
ceived the  sanction  of  the  Legislature  of  Illinois  in  1851  by 
a  provision  of  law  that  banks  might  pay  out  the  notes  of  any 
specie-paying  banks  in  the  United  States  or  Canada.  The 
Georgia-Chicago  banks,  therefore,  fulfilled  all  the  require- 
ments of  law  and  public  opinion.  They  were  really  better 
than  the  free  banks  of  Illinois,  because  they  had  assets  in 
their  vaults  while  the  latter  only  had  securities  in  the  hands 
of  the  State  Auditor.  None  of  the  former  failed  nor  did  the 
iscount  on  their  notes  ever  exceed  i  per  cent. 
Disputes  between  payer  and  payee  as  to  the  goodness  of 
k  notes  were  of  frequent  occurrence  at  that  time,  ranging 


406  REPRESENTATIVE  MONEY. 

over  the  whole  gamut  —  whether  the  issuing  bank  was 
sound  or  unsound,  whether  the  note  was  genuine  or  counter- 
feit, and  if  sound  and  genuine  whether  the  discount  was 
within  reasonable  limits.  All  merchants  kept  Bank-Note 
Reporters  for  ready  reference.  If  there  was  a  bank  in  the 
town  the  cashier  was  appealed  to  constantly  to  pass  upon 
the  goodness  of  notes  in  circulation. 

These  manifold  evils  were  chiefly  due  to  want  of  uniformity 
and  of  public  regulation.  Want  of  uniformity  opened  the 
door  to  the  5400  counterfeit  and  spurious  notes  catalogued 
at  one  time.  Want  of  public  regulation  paved  the  way  to 
the  bad  banking  which  was  liable  to  break  out  at  any  time 
and  which  made  everybody  suspicious  of  every 

theTtouWe  bank  n°te   that   he   WaS  nOt  entirelv  familiar 

with.     When  the  national  banking  law  went 

into  full  effect,  the  Bank-Note  Reporters  ceased  publication. 
There  was  no  longer  a  demand  for  them  because  the  evils 
which  they  were  intended  to  guard  against  had  for  the  most 
part  disappeared.  Counterfeiting  was  not  wholly  abolished, 
but  was  reduced  to  the  lowest  limits.  Better  still,  the  new 
system  has  trained  us  in  ideas  favorable  to  clean  banking. 
Like  ideas  favorable  to  cleanliness  of  any  kind,  when  they 
once  take  root  they  are  not  soon  dislodged. 


CHAPTER  XVI. 
THE  NATIONAL  BANKING  SYSTEM. 

To  most  people  the  National  Banking  system  means  little 
else  than  security  for  bank  notes,  deposited  in  the  Treasury 
at  Washington.  This,  as  we  have  seen,  was  an  old  concep- 
tion, tried  in  many  States  with  varying  results,  and  brought 
very  near  to  perfection  in  New  York  after  some  serious  mis- 
takes and  disappointments.  This  is  not  the  most  important 


THE  NATIONAL  BANKING  SYSTEM.  407 

feature  of  the  system.  The  note-issuing  department  is  mori- 
bund. The  most  important  feature  is  uniformity,  or  the 
bringing  of  the  banking  business  of  more  than 
its  Uniformity,  forty  different  States,  and  different  bodies 
of  law  and  practice  and  judicial  decision, 
under  one  authority  and  within  the  grasp  of  one  set  of  ad- 
ministrative officers.  A  bank  is  a  credit  establishment  in 
which  circulating  notes  are  not  usually  the  chief  concern. 
Taking  the  country  as  a  whole  the  deposits  and  the  clearing- 
house transactions  are  enormously  greater  than  the  note 
issues  are  or  ever  can  be.  The  value  of  the  system  is  to  be 
estimated  on  its  large  side  rather  than  on  its  small  one. 

It  is  not  to  be  supposed  that  all  the  banking  disorders  of 
the  first  half-century  of  the  republic  would  be  possible  now. 
Civilization,  progress,  experience,  rapid  intercommunication 
count  for  much  in  banking  as  in  other  things.  Nor  can  we 
overlook  the  fact  that  the  State  systems  were  steadily  im- 
proving before  the  war.  Those  of  Massachu- 

setts  and  of  Louisiana  left  little  to  be  desired, 
while  in  the  matter  of  elasticity  and  in  the 
method  of  redemption  they  were  superior  to  the  present 
National  system.  Nor  is  it  assumed  that  there  are  no  ele- 
ments of  disorder  in  the  National  system.  Every  bank  failure 
is  a  disorder,  and  we  have  certainly  not  seen  the  last  of 
these.  Under  ante  bellum  conditions  heterogeneousness  was 
itself  a  promoter  of  abuses;  and  rascals  found  their  oppor- 
tunity in  it,  as  a  fox  finds  refuge  in  a  diversified  country. 

It  is  true  that  State  banks  of  deposit  and  discount  exist 
everywhere  side  by  side  with  national  banks.  But  as  the 
two  Banks  of  the  United  States,  by  their  example  and  rival- 
ship,  served  as  regulators  of  the  State  bank  currency,  so  do 
the  national  banks  set  the  pace  for  the  State  banks  now. 
The  latter  must  be  as  good  as  the  former  or  they  will  "get 
left."  Most  of  the  State  banks  are  small,  having  less  capital 


408  REPRESENTATIVE  MONEY. 

than  $50,000,  which  is  the  smallest  sum  that  is  permitted 
under  the  National  law.  Thus  they  respond  to  a  real  want 
in  the  smaller  towns. 

Mr.  John  J.  Knox  has  summarized  the  debates  in  Con- 
gress on  the  national  banking  acts  of  1863  and  I864.1  It 
was  Secretary  Chase's  idea  in  the  beginning  merely  to  make 
a  market  for  government  bonds  by  requiring  the  State  banks 
to  secure  their  circulating  notes  with  such  bonds,  imposing 
a  tax  on  all  notes  not  so  secured.  This  proved 

to  ^e  not  an  easy  tas^'  ^°  ^  was  abandoned 
and  a  new  project  was  brought  forward  by 
Messrs.  Hooper  and  Spaulding,  of  the  Committee  of  Ways 
and  Means,  in  the  summer  of  1862.  They  took  up  the  free 
banking  laws  of  the  several  States,  and  especially  those  of 
New  York,  Ohio,  and  Michigan,  selected  and  patched  to- 
gether the  parts  that  they  deemed  advantageous,  framed  the 
machinery  of  administration  and  added  a  clause  making  the 
government  absolutely  responsible  for  the  note  issues,  and 
requiring  the  Treasurer  to  redeem  those  of  failed  banks  as 
presented,  z>.,  without  waiting  to  sell  the  security.  When 
the  bill  came  before  the  House,  July  12,  1862,  it  was  tabled. 
The  same  fate  overtook  it  on  its  next  presentation,  in  the 
following  January.  Then  Mr.  Sherman  introduced  a  similar 
bill  in  the  Senate  and  carried  it  through  that  body  by  a  close 
vote,  23  to  21.  The  Senate  bill  passed  the  House  without 
amendment  and  became  a  law  February  25,  1863,  and  Hugh 
McCulloch  of  Indiana  was  appointed  Comptroller  of  the 
Currency  under  it. 

The  act  was  extremely  crude.  The  Comptroller  recom- 
mended several  important  amendments.  A  new  bill  was 
accordingly  framed  the  following  year  and  after  long  debate 
in  both  houses  was  passed  and  became  a  law  June  3,  1864. 
Among  the  amendments  of  importance  was  one  forbidding 

1  Rhodes'  Journal  of  Banking,  June  and  July,  1892. 


THE  NATIONAL  BANKING  SYSTEM.  409 

loans  on  landed  security.     The  act  of  1863  authorized  the 
banks  to  make  loans  "on  real  and  personal  security."     The 
words  "real  and"  were  now  stricken  out.   This 
IS^sSf        feature  of  banking  law  is  first  found  on  this 
side  of  the  ocean,  so  far  as  I  can  discover,  in 
the  charter  of  the  Bank  of  Montreal,  dated  March  17,  1821, 
where  it  stands  in  these  words  as  one  of  the  powers  granted  : 
"To  take  and  hold  mortgages  and  hypotheques  on  real 
property   for   debts    contracted   to    it   in  the 
Mortgage*1011       ordinary  course  of  its  dealings,  but  on  no  ac- 
count to  lend  on  land,  mortgage,  or  hypothtque, 
nor  to  purchase  them  on  any  pretext  except  as  here  per- 
mitted." x 

The  reason  why  lands  and  buildings  ought  not  to  form 
the  basis  of  the  loans  of  a  commercial  bank  is  that  they  are 
not  quick  assets.  The  liabilities  of  the  bank  being  payable 
on  demand  the  assets  must  be  convertible  into  money  within 
short  periods.  When  real  property  is  given  as  security  for 
a  debt  both  borrower  and  lender  look  to  it,  and  not  to  the 
personal  obligation,  as  the  source  of  payment.  A  fortiori 
land  ought  not  to  form  the  basis  of  the  bank  itself. 

Other  amendatory  acts  have  been  passed  from  time  to 
time.  The  principal  features  of  the  system  are  these : 

There  is   a  bureau  of   the    Treasury    De- 
Comptroiier.        partment  having  charge  of  all  matters  relating 
to  national  banks,  the  chief  officer  of  which 
is  the  Comptroller  of  the  Currency. 

Any  number  of  persons  not  less  than  five  may  form  an 
association  for  banking  purposes,  to  continue 
Organization.        not  more  than  twenty  years,  but  renewable  for 
twenty  years  with  the  approval  of  the  Comp- 
troller.    After  the  association  is  formed  it  is  within  the  discre- 
tion of  the  Comptroller  to  grant  a  certificate  (which  is  the 

1  Breckenridge,  p.  24. 


410  REPRESENTATIVE  MONEY. 

equivalent  of  a  charter),  or  not;  if  he  withholds  it,  he  is  not 
obliged  to  give  any  reasons  for  doing  so. 

The  powers  of  the  bank  are  limited  to  the  discounting  of 
promissory  notes,  drafts,  bills  of  exchange,  and  other  evi- 
dences of  debt;  receiving  deposits,  dealing  in 
exchange,  coin  and  bullion,  loaning  money  on 
personal  security,  and  issuing  circulating  notes. 
It  cannot  hold  real  estate  except  such  as  may  be  necessary 
for  the  transaction  of  its  business,  or  such  as  may  have  been 
taken  as  security  for  debts  previously  contracted  in  good 
faith. 

There  can  be  no  national  banks  anywhere  of  less  capital 

than  $50,000,  and  these  small  ones  are  restricted  to  places 

of  not  more  than  6,000  inhabitants.     In  cities  of  more  than 

6,000  and  less  than  50,000  inhabitants  there 

Capital.  can  be  no  bank  of  less  than  $100,000  capital, 

and  in  cities  of  50,000  inhabitants  or  more 

none  of  less  than  $200,000.     One-half  of  the  capital  must  be 

paid  in  before  the  bank  can  begin  business,  and  the  remainder 

must  be  paid  in  monthly  installments  of  at  least  ten  per  cent 

each. 

Shareholders  are  liable  for  the  debts  of  the 
Liability.  bank  to  an  amount  equal  to  the  par  value  of 

their  shares,  in   addition   to  the   amount  in- 
vested therein. 

Banks  may  be  made  depositaries  of  public  money  by  the 
Secretary  of  the  Treasury  upon  giving  satis- 
Public  Money,      factory   security    "by  the   deposit  of   United 
States  bonds  and  otherwise."    The  words  "and 
otherwise  "  are  understood  to  mean  the  personal  bonds  of  the 
officers  of  the  bank. 

Each  bank  having  a  capital  exceeding  $150,000  must 
deposit  in  the  Treasury  of  the  United  States  registered 
interest-bearing  bonds  to  an  amount  not  less  than  $50,000.- 


THE  NATIONAL  BANKING  SYSTEM.  411 

Those    having  a  capital    of  $150,000  or  less  must  deposit 

bonds  equal  to  one-fourth  of  their  capital  stock.     Each  bank 

may  receive  circulating  notes  to  the  amount 

Bondsnment         of  9°   Per  cent  of  the  market  value  of  the 
bonds  deposited  by  it,  but  not  exceeding  90  per 

cent  of  the  par  value  of  the  same,  and  not  exceeding  90  per 
cent  of  the  paid-in  capital  of  the  bank,  but  no  bank  is  com- 
pelled to  issue  circulating  notes.  Bonds  may  be  withdrawn 
by  banks  by  retiring  their  circulating  notes  or  depositing  law- 
ful money  to  an  equal  amount  in  the  Treasury.  Not  more 
than  $3,000,000  in  the  aggregate  can  be  retired  in  one  month, 
nor  can  the  amount  of  bonds  on  deposit  for  circulation  be 
reduced  below  the  limitations  above  stated.  No  bank  notes 
shall  be  issued  smaller  than  $5.  The  notes  are  receivable 
at  par  for  all  dues  to  the  United  States  except  duties  on 
imports,  and  are  payable  for  all  debts  owing  by  the  United 
States  within  the  United  States,  except  interest  on  the  public 
debt  and  in  redemption  of  the  national  currency.  Every  bank 
must  receive  the  notes  of  every  other  bank  at  par  in  payment 
of  any  debt  due  to  itself.  No  bank  can  issue  post  notes. 

Every  bank  in  certain  designated  cities,  called  reserve 
cities,  must  keep  a  reserve  of  lawful  money  equal  to  25  per 
cent  of  its  deposits.  All  other  banks  must  keep  a  like  reserve 
of  15  per  cent,  but  three-fifths  of  the  said  15  per  cent  may 
consist  of  balances  on  deposit  in  banks  approved  by  the 
Comptroller  in  the  reserve  cities.  Any  bank  in  the  reserve 
cities  may  keep  one-half  of  its  reserve  as  deposits  in  a  "  cen- 
tral reserve  city,"  i.e.,  New  York,  Chicago  or  St.  Louis. 
Failure  to  keep  the  legal  reserve  is  followed  first  by  notice 

from  the  Comptroller  to  make  good  the  reserve 
Legal  Reserve.  within  thirty  days.  In  case  of  failure  to  do  so 

the  Comptroller  may,  with  the  concurrence  of 
the  Secretary  of  the  Treasury,  put  the  bank  in  liquidation. 
This  clause  is  rather  for  warning  than  for  strict  enforcement. 


412  REPRESENTATIVE  MONEY. 

No  bank  would  be  excused  for  stopping  payment  of  its  de- 
posits when  it  still  had  25  per  cent  of  the  same  in  cash. 
Whether  severe  measures  should  be  taken,  in  case  the  reserve 
were  below  the  legal  limit,  would  depend  upon  the  general 
course  of  the  bank  and  the  character  of  its  assets.  Banks 
when  below  their  legal  reserve  are  not  allowed  to  increase 
their  liabilities  by  making  new  loans  or  discounts  otherwise 
than  by  purchasing  bills  of  exchange  payable  at  sight,  or  to 
make  any  dividend  of  profits  until  their  reserve  has  been 
restored. 

Each  bank  must  keep  on  deposit  in  the  Treasury  of  the 
United  States  lawful  money  equal  to  5  per  cent  of  its  circu- 
lation as  a  fund  for  redeeming  the  same.  This 
Redemption.  5  per  cent  may  be  counted  as  part  of  its  lawful 
reserve.  This  does  not  relieve  banks  from 
the  duty  of  redeeming  their  notes  at  their  own  counters  on 
demand. 

Banks  are  allowed  to  charge  such  rates  of  interest  on  loans 
as  are  allowed  by  the  law  of  the  State  in  which 
Usury.  they  are  situated,  and  no  more,  but  in  dis- 

counting bills  of  exchange  on  other  places  they 
may  charge  the  current  rate  of  exchange  in  addition. 

One-tenth  of  the  net  profits  must  be  carried  to  the  surplus 
fund  until  it  is  equal  to  20  per  cent  of  the  capital. 

A  bank  must  not  lend  more  than  one-tenth  of  its  capital 

to  one  person,  corporation  or  firm,  directly  or  indirectly,  nor 

lend  money  on  the  security  of  its  own  shares, 

Restrictions.        nor  be  the   purchaser  or  holder  of  its  own 

shares   unless  taken   as    security  for    a   debt 

previously   contracted   in  good  faith,  and   if  so  taken  they 

must  be  sold  within  six  months  under  penalty  of  being  put 

in  liquidation. 

No  bank  can  become  indebted  to  an  amount  exceeding  its 
unimpaired  capital  except  for  circulating  notes,  deposits, 


THE  NATIONAL  BANKING  SYSTEM.  413 

drafts  drawn  against  its  own  funds  and  dividends  due  to  its 
own  shareholders.  No  bank  can  hypothecate  its  own  notes. 
No  bank  can  permit  any  part  of  its  capital  to 
ke  withdrawn.  If  the  capital  is  impared  by 
bad  debts  or  otherwise  the  deficiency  must  be 
made  good  within  three  months  after  receiving  a  requisition 
from  the  Comptroller,  under  penalty  of  being  put  in  liqui- 
dation. No  bank  can  certify  a  check  for  a  customer  for  more 
money  than  he  has  on  deposit  at  the  time. 

Each  bank  must  make  to  the  Comptroller  not  less  than 

five  reports  each  year,  showing  its  condition  at  times  to  be 

designated  by  him,  and  he  may  call  for  special 

Reports.  reports  from  any  particular  bank  whenever  he 

chooses  to  do  so.    Each  bank  must  pay  to  the 

Treasurer  of  the  United  States  a  tax  equal  to  one  per  cent 

per  annum  on  the  average  amount  of  its  notes  in  circulation. 

The  shares  are  liable  to  taxation  by  the  States  in  which  they 

are  situated,  at  the  same  rates  as  other  moneyed  capital  owned 

by  the  citizens  of  such  States.     The  notes  of  all  banks  other 

than  national,  and  all  of  persons,  towns,  cities  and  municipal 

corporations,  used  for  circulation,  are  liable  to  a  tax  of  10  per 

cent,  to  be  collected  by  the  Commissioner  of  internal  Revenue. 

The  Comptroller  has  power  to  appoint  examiners  to  make 

a  thorough  examination  into  all  the  affairs  of  every  bank. 

In  case  of  default  by  any  bank  in  the  redemption  of  its 

circulating  notes  the  Comptroller  must  declare  the  security 

bonds  forfeited  to  the  United  States,  and  give 

Government         notice  to  the  holders  of  the  notes  to  present 

Redemption  of  P  . . 

Bank  Notes.          them  at  the  Treasury  for  payment,     and  the 

same  shall  be  paid  as  presented  in  the  lawful 
money  of  the  United  States."  Then  the  Comptroller  may  in 
his  discretion  cancel  the  bonds  to  an  equivalent  sum,  or  sell 
so  much  of  them  as  may  be  necessary.  In  case  of  a  deficiency 
in  the  proceeds  of  all  the  bonds  to  reimburse  the  government 


414  REPRESENTATIVE  MONEY. 

for  the  redemption  of  the  notes,  the  United  States  shall  have 
a  paramount  lien  on  all  the  assets  of  the  bank  (which  includes 
the  liability  of  shareholders),  and  the  deficiency  must  be 
made  good  before  any  other  debts  are  paid.  When  the  notes 
are  paid  they  must  be  canceled.  Any  gain  arising  from 
lost  and  destroyed  notes  inures  to  the  benefit  of  the  United 
States. 

In  the  act  of  July  12,  1882,  it  was  provided  that  silver 

certificates,  when  held  by  any  bank,  might  be  counted  as  part 

of  its  lawful  reserve,  and  that  no  bank  should  be  a  member 

of  any  clearing  house  in  which  silver  certificates  were  not 

received  in  the  settlement  of  clearing-house 

balances.  _  This  was   one   of   the   numerous 

CoCcS. 

devices  by  which  congressmen  of  a  certain 
type  showed  their  friendliness  to  silver  and  their  enmity  to 
banks.  At  the  New  York  Clearing  House  silver  certificates 
are  not  paid  by  the  banks  to  each  other,  consequently  no 
question  can  be  raised  as  to  receiving  them. 

There  is  a  feature  of  the  National  Banking  system  which 
is  most  wholesome  and  salutary  in  its  effects  and  is  entitled 
to  the  highest  praise  ;  it  is  generally  lost  sight  of  in  discuss- 
ing the  act.  It  is  its  administration  of  the  affairs  of  failed 
banks.  The  Comptroller  has  the  absolute  appointment  of 

all  receivers  and  fixes  their  compensation.  All 
ReceiversMps.  moneys  realized  from  the  assets  are  paid  into 

the  Treasury  to  the  credit  of  the  Comptroller, 
and  all  dividends  are  paid  out  by  him.  The  result  is  that 
he  is  virtually  a  general  receiver  for  all  the  failed  banks  of 
the  system,  carrying  on  the  details  through  the  receivers 
whom  he  appoints.  The  salaries  paid  to  receivers  are  very 
small  indeed.  All  questions  of  law  are  passed  upon  by  the 
Department  and  are  almost  invariably  accepted  by  all  parties, 
few  controversies  arising  except  where  questions  of  fact 
are  involved.  The  result  is  a  very  small  percentage  of  cost 


THE  NATIONAL  BANKING  SYSTEM.  415 

in  the  administration  of  these  trusts  and  a  very  speedy  reali- 
zation upon  the  assets. 

In  the  State  of  New  York,  and  in  most  of  the  States,  the 
expense  of  administrating  the  affairs  of  a  failed  bank  is 
simply  enormous.  The  New  York  code  limits  the  compen- 
sation of  receivers  to  five  per  cent  of  the  amount  they  receive 
and  disburse.  This  in  the  case  of  a  million-dollar  bank 
would  be  fifty  thousand  dollars,  or  about  ten  times  the  pay 
under  the  national  system.  The  courts  usually  go  to  the 
limit.  The  man  appointed  as  receiver  usually  employs  some 
one  else  to  do  the  work,  and  he  draws  his  salary  as  an  extra 
charge  upon  the  trust. 

It  hardly  needs  to  be  said  that  a  system  which  has  served 
the  people  more  than  thirty  years  and  is  now  conducting  the 
great  bulk  of  the  country's  exchanges,  a  system  with  which 
all  bankers,  merchants  and  lawyers  are  familiar,  and  which 
has  received  judicial  interpretation  and  settlement  in  a 
thousand  ways,  ought  to  be  preserved,  and  if  not  perfect 
should  be  made  so. 

Its  chief  defect  on  the  note-issuing  side  is  the  want  of 
elasticity.  Here  the  element  of  credit,  which  is  the  vital 
principle  of  banking,  is  wanting,  and  what  is  substituted  for 
it  is  not  the  best  substitute.  The  system  represents  neither 
the  currency  principle  nor  the  banking  principle.1  The  cur- 
rency principle,  of  which  the  Bank  of  England  is  the  type, 
requires  that  all  circulating  notes  over  and  above  a  fixed 
amount,  which  will  be  in  people's  pockets  in  every  emergency, 
shall  be  gold  certificates  of  deposit.  It  is  to  be  said  in  favor 
of  this  system  that  all  the  paper  in  circulation 
over  and  above  the  fixed  amount  is  absolutely 
good  and  absolutely  self-regulating.  Under  our 
system  there  is  no  fixed  amount,  except  the  fiat  money,  of 
one  sort  and  another,  issued  by  the  government.  Any  excess 

1  See  page  331. 


416  REPRESENTATIVE  MONEY. 

issued  by  banks  must  be  bought  by  them  from  the  govern- 
ment at  the  rate  of  $1.10  to  $1.20  per  dollar,  and  the 
machinery  and  red  tape  to  be  surmounted  generally  prevent 
the  issue  of  it  until  the  immediate  occasion  for  it  has  passed. 
When  obtained  it  is  not  money,  as  the  corresponding  Bank 
of  England  notes  are,  but  government  debt  chopped  in  small 
bits.  If  our  banks  desired  to  issue  notes  against  gold  on  the 
Bank  of  England  plan  they  could  not  do  so,  because  the  law 
would  not  let  them.  Even  if  the  fiat  money  of  the  government 
were  out  of  the  way,  the  National  Banking  system  would  bear 
no  more  resemblance  to  the  Bank  of  England  system  than  it 
does  now.  The  lawful  money  reserve  would  then  be  gold, 
which  would  be  a  great  gain  in  itself,  but  that  would  be  the 
only  change. 

Every  institution  must  stand  or  fall  by  its  results.  Tested 
in  this  way  the  national  bank-note  system  is  a  failure.  It 
reached  high-water  mark  fourteen  years  ago.  In  1881  the 
note  issues  were  $325,000,000.  Then  a  decline  began  and 
continued  till  1890,  when  the  amount  outstanding  was  only 
$123,000,000  and  would  have  been  smaller,  but  for  the  pro- 
visions of  law  which  prevent  banks  from  withdrawing  all  of 
their  bonds.  The  net  shrinkage  from  January  14,  1875,  to 
October  31,  1894,  was  $145, 214,559. l  ^  *s  said,  byway 
of  explanation,  that  the  decline  was  due  to  the  rapid  pay- 
ment of  the  national  debt,  the  bonds  being  taken  away  from 
the  banks  in  spite  of  them.  This  is  not  the 
Actual  Results,  whole  truth,  but,  if  it  were,  the  answer  would 
be  that  the  payment  of  the  national  debt  is 
one  of  the  facts  to  be  reckoned  with  and  that  a  system  that 
cannot  square  itself  to  this  fact  is  doomed.  The  people  will 
neither  create  nor  prolong  an  interest-bearing  debt  merely 
to  supply  a  basis  for  bank-note  issues.  Nor  ought  they  to 
do  so. 

1  Comptroller's  Report  for  1894,  p.  162. 


THE  NATIONAL  BANKING  SYSTEM.  417 

On  each  $1000  of  debt  the  government  pays  $40  per  year. 
In  25  years  it  pays  a  sum  equal  to  the  principal,  and  still 
owes  the  principal.  A  government  has  no  gainful  occu- 
pations. If  it  is  able  to  pay  the  $1000  and  stop  the  interest, 
then  the  plan  of  prolonging  the  debt  for  banking  purposes  is 
like  saying,  "  We  will  keep  this  bond  alive  and  pay  $40  per 
year  forever,  provided  somebody  will  chop  it  into  i  oo  pieces 
of  $10  each.  We  will  not  pay  the  $40  to  the  owners  of  the 
pieces,  but  to  the  parties  who  have  chopped  it."  It  should 
be  added  that  the  only  favor  the  bank  does  in  the  premises 
is  to  stand  between  the  people  and  a  better  kind  of  money, 
to-wit  gold,  or  gold  certificates,  of  the  Bank  of  England  type, 
of  which  $100  might  be  had  for  the  same  cost  as  every  $90 
of  the  present  notes. 

It  is  sometimes  said  by  the  advocates  of  a  permanent 
national  debt  that  the  money  collected  from  the  taxpayers 
is  worth  more  to  them  than  the  rate  of  interest  paid  on  the 
national  debt,  and  hence  that  the  payment  of  the  debt  is  bad 
economy.  This  means  that  our  interest-bearing  debt  ought 
to  have  been  left  at  its  maximum  of  $2,600,000.000  and 
that  the  paying  of  any  of  it  has  been  injurious 
Polic~  aymg:  to  the  nation.  The  argument  rests  on  the 
assumption  that  all  the  money  collected  from 
the  taxpayers  would  otherwise  be  saved  by  them,  converted 
into  capital  and  used  reproductively  at  better  rates  than  the 
government  pays,  being  neither  consumed  unprofitably  nor 
lost  in  bad  investments.  There  is  no  foundation  for  such 
belief,  and  it  has  been  generally  rejected  by  economists. 
J.  S.  Mill  says  : 

"  The  desirableness,  per  se,  of  maintaining  a  surplus  for 
this  purpose  (national  debt-paying)  does  not,  I  think,  admit 
of  a  doubt.  We  sometimes,  indeed,  hear  it  said  that  the 
amount  should  rather  be  left  to  *  fructify  in  the  pockets  of  the 
people.'  This  is  a  good  argument,  as  far  as  it  goes,  against 


418  REPRESENTATIVE  MONEY. 

levying  taxes  unnecessarily  for  purposes  of  unproductive 
expenditure,  but  not  against  paying  off  a  national  debt.  For, 
what  is  meant  by  the  word  '  fructify '  ?  If  it  means  anything, 
it  means  productive  employment ;  and  as  an  argument  against 
taxation,  we  must  understand  it  to  assert,  that  if  the  amount 
were  left  with  the  people  they  would  save  it,  and  convert  it 
into  capital.  It  is  probable,  indeed,  that  they  would  save  a 
part,  but  extremely  improbable  that  they  would  save  the 
whole  :  while  if  taken  by  taxation,  and  employed  in  paying 
off  debt,  the  whole  is  saved,  and  made  productive.  To  the 
fundholder  who  receives  the  payment  it  is  already  capital, 
not  revenue,  and  he  will  make  it  'fructify,'  that  it  may  con- 
tinue to  afford  him  an  income.  The  objection,  therefore,  is 
not  only  groundless,  but  the  real  argument  is  on  the  other 
side :  the  amount  is  much  more  certain  of  fructifying  if  it  is 
not  'left  in  the  pockets  of  the  people.'  "  l 

The  payment  of  the  national  debt  has  not  been  the  only 
factor  in  causing  the  decline  of  the  bank  circulation.  An- 
other and  perhaps  more  potent  one  has  been  the  advance  in 
the  market  price  of  the  bonds,  making  it  advantageous  for 
the  banks  to  sell  their  holdings  and  invest  the  proceeds  in 
other  ways.  Banks  have  to  compete  with  other  investors  in 
the  purchase  of  these  securities.  The  bidding  of  the  govern- 
ment in  the  market  in  order  to  dispose  of  its  surplus  revenue, 
put  up  the  price  of  the  4  per  cents  in  the 
autumn  of  1889  to  127^.  The  premium  of 
$275  on  each  $1,000  had  to  be  sunk  in  seven- 
teen years,  the  time  the  bonds  then  had  to  run.  The  effect 
of  this  was  to  reduce  the  rate  of  interest  which  a  purchaser 
could  realize  to  about  2  y§  per  cent  per  annum.  Banks  as  a 
general  rule  could  do  better  with  their  money,  and  for  this 
reason  sold  their  bonds.  The  competition  has  not  been  so 
severe  in  more  recent  years,  the  government  being  no  longer 

1  Political  Economy,  V,  vii,  §  3. 


THE  QUANTITY  THEORY.  419 

a  buyer,  but  to  some  extent  a  seller  of  bonds.  The  price  of 
the  4  per  cents  has  fallen  to  113  so  that  the  premium  on  a 
$1000  bond  (which  must  be  wiped  out  in  twelve  years)  is 
$130,  or  about  $11  per  year.  Under  these  conditions  there 
has  been  an  increase  in  the  amount  of  national  bank  notes, 
which  now  stands  at  something  over  $208,000,000.  The 
greater  part  of  the  recent  increase,  however,  was  due  to  the 
panic  of  1893  which  caused  an  abnormal  demand  for  currency 
for  a  few  weeks.  The  supply  did  not  arrive,  however,  until 
October,  when  the  demand  had  for  the  most  part  subsided. 
Every  principle  of  banking  in  the  national  law  was  in 
existence  in  State  systems,  or  in  Canada,  before  that  law  was 
enacted,  except  the  government's  responsibility  for  the  notes 
and  the  requirement  that  every  bank  shall  receive  the  notes 
of  every  other  bank  at  par  in  payment  of  debts  due  to  itself. 
The  merit  of  the  National  system  consisted  in  the  very  fact 
that  the  methods  adopted  had  been  tested,  and  had  been 
proved  good  (or  were  supposed  to  be  so),  as  the  result  of 
actual  experience.  If  there  be  any  other  novelty  in  it,  it  lies 
in  the  discretion  lodged  with  the  Comptroller  to  grant  or 
withhold  charters,  according  as  he  may  or  may  not  be  satis- 
fied with  the  general  appearance  of  the  candidate. 


CHAPTER   XVII. 
THE  QUANTITY  THEORY. 

THE  quantity  theory  assumes  that  "  the  value  of  money 
(whatever  that  money  may,  in  the  place  and 
at  the  time'  consist  of)  depends,  like  the  value 
^  of  anything  else,  on  the  relations  of  demand 
and  supply;  that  prices  are  determined  in  the  amount  of 
goods  offered  for  money  and  the  amount  of  money  offered 


420  REPRESENTATIVE  MONEY. 

for  goods."  General  Francis  A.  Walker,1  *whose  definition 
of  the  quantity  theory  is  here  quoted,  adds  that  we  must 
take  account  not  alone  of  the  number  of  money  pieces,  but 
also  of  the  rapidity  of  their  circulation. 

He  then  casts  out  of  the  reckoning  all  goods  consumed 
by  the  producers  themselves.  As  these  do  not  enter  into 
the  world's  exchanges  they  do  not  affect  prices.  Next,  he 
casts  out  all  goods  that  are  exchanged  by  barter  without  the 
use  of  money.  As  price  is  value  expressed  in  terms  of 
money,  a  transaction  into  which  money  does  not  enter  is,  of 
course,  irrelevant.  Inasmuch  as  clearing-house  transactions 
are  of  this  description  they  are  likewise  cast 
ou^'  ^  c^ear^ng  house  is  a  machine  of  barter. 
For  the  same  reason  banking  operations,  aside 
from  the  issue  of  circulating  notes,  are  cast  out.  A  single 
bank  by  its  system  of  checks  and  deposits  operates  exactly 
like  a  clearing  house.  It  is  a  machine  of  barter  on  a  smaller 
scale.  Bills  of  exchange  generally  pass  through  banks,  but 
not  always  and  not  necessarily.  They  are  instruments  of 
barter  of  the  most  express  and  typical  kind.  Therefore 
they  must  be  cast  out  of  the  reckoning.  If  barter  itself  can 
have  no  effect  upon  prices,  the  bartering  apparatus  can  have 
none,  however  extensive  and  varied  it  may  be. 

General  Walker  considers  the  case  of  goods  which  are 
sold  on  credit,  but  are  to  be  paid  for  eventually  with  money. 
Such  sales,  he  thinks,  contribute  to  the  demand  for  money 
just  as  truly  as  goods  sold  for  cash  do,  but  not  just  as  much, 
because  "it  is  not  necessary  to  keep- such  large  amounts  of 
money  in  the  shops  or  to  carry  them  around  on  the  person." 
Here  we  have  an  indeterminate  factor,  because  we  never 
can  know  what  portion  of  the  goods  sold  on  credit  to-day 
will  be  paid  for  eventually  in  money  and  what  portion  by 
offsets  through  banks. 

1  In  The  Quarterly  Journal  of  Economics,  October,  1893. 


THE  QUANTITY  THEORY.  421 

General  Walker  h'olds  that  barrk  notes  operate  upon  price's 
in  the  same  way  as  metallic  money.  He  says  : 

"Bank  notes  are  money.  They  are  distinct  and  tangible 
things,  which  pass  out  from  the  bank  and  have  their  own 
separate  life  and  course  ;  which  become  the  property  of  him 
in  whose  hands  they  are,  just  as  truly  as  do  coins  of  gold  or 
silver.  Like  such  coins  they  pass  from  hand 


wote  dx  to  n^nd  throughout  the  community,  without 

reference  to  the  character  or  the  credit  of  the 
person  offering  them.  Like  such  coins  they  are  accepted  in 
final  discharge  of  debts  and  full  payment  for  commodities, 
without  necessary  recourse  to  the  issuing.  bank,  except  as 
they  may  individually  become  too  much  worn  for  further 
circulation,  after  performing,  it  may  be  a  hundred,  it  may  be 
a  thousand,  exchanges." 

Since  this  is  true  also  of  government  notes,  which  pass 
from  hand  to  hand,  these  must  operate  on  prices  in  the 
same  way  as  bank  notes,  although  General  Walker  does  not 
specially  mention  them.  If  all  this  is  conceded  what  does 
it  lead  up  to  ?  Merely  that  "the  demand  for  money,  whatever 
it  may  be,  does,  taken  in  connection  with  supply,  determine 
prices.  .  .  .  The  demand  for  money  is  found  in  the  money 
work  to  be  done,  the  amount  of  exchanging  which  needs  to 
be  effected  by  the  use  of  money.  The  supply  of  money 
consists  in  the  number  of  money  pieces  available  for  the 
work  of  exchange  taken  in  connection  with  the  facility  with 
which  they  can  be  so  used,  the  freedom  or  rapidity  of 
circulation." 

Obviously  the  rapidity  of  circulation  is  another  indeter- 
minate factor.  It  depends  upon  the  state  of  trade  at  any 
given  time  whether  the  money  available  shall  circulate  more 
or  less  rapidly.  Therefore  the  proposition  is  that  prices  are 
determined  by  the  demand  for  money,  "whatever  it  may  be," 
taken  in  connection  with  the  number  of  money  pieces  and 


422  REPRESENTATIVE  MONEY. 

the  state  of  trade.  So  we  have  three  indeterminate  factors, 
viz.  :  (i)  All  goods  sold  on  credit  (quantity  unknown);  (2) 
"The  amount  of  exchanging  which  needs  to 
A  Barren  Result,  be  effected  by  the  use  of  money"  (amount 
unknown);  (3)  The  rapidity  of  the  circu- 
lation, alias  the  state  of  trade.  The  only  determinate  factor 
is  the  number  of  money  pieces  available.  These  can  usually 
be  ascertained,  but  there  is  always  room  for  dispute  as  to 
the  amount  of  gold  in  the  country  and  whether  the  gold  and 
the  paper  currency  in  the  Treasury  should  be  counted  or 
not,  etc. 

If  we  agree  that  General  Walker's  reasoning  is  sound 
(and  I  do  not  dispute  it),  it  amounts  to  saying  that  prices 
are  determined  by  four  factors,  three  of  which  are  indeter- 
minable. A  proposition  more  barren  and  inconsequential  it 
would  be  hard  to  imagine. 

The  quantity  theory,  however,  needs  to  be  tested  by 
statistics.  As  commonly  hawked  about,  it  implies  that  prices 
depend  upon  the  quantity  of  money  in  circulation,  />., 
the  supply.  This  involves  the  assumption  either  that  the 
demand  for  money  is  constant,  or  that  demand  need  not 
be  considered.  Miss  Sarah  McLean  Hardy, 
of  WellesleY  College,  has  subjected  this  theory 
to  the  statistical  test,  in  a  very  thorough  man- 
ner.1 She  chooses  for  the  field  of  investigation  the  United 
States  during  the  thirty-one  years  1861-1892,  making 
special  examinations  of  the  civil  war  period  and  of  the 
suspension  of  specie  payments.  The  data  of  prices  are 
found  in  the  report  of  the  Senate  Committee  on  Finance 
(1893),  as  collated  by  Professor  Falkner.  The  figures 
as  to  the  volume  of  money  in  circulation  each  year  are 
taken  from  the  Statistical  Abstract  of  the  United  States 


The  Journal  of  Political  Economy  (Chicago),  March,  1895. 


THE  QUANTITY  THEORY.  423 

The  results  are  in  marked  contradiction  to  the  quantity 
theory,  as  that  is  generally  understood.  The  amount  of 
money  in  circulation  has  increased  257 'per  cent  since  1861, 
while  average  prices  have  fallen  a  little  more  than  8  per 
cent.  If  this  were  all  that  the  tables  told  us,  it  might  be 
said  that  the  discrepancy  was  due  to  the  increase  of  popula- 
tion and  trade.  But  there  was  not  much 
suftstiVeRe"  increase  of  population  during  the  four  years 
of  war,  from  1861  to  1865.  During  this  period 
prices  rose  115  per  cent  while  the  value  of  money  increased 
only  59  per  cent,  or  about  one-half  as  much.  Here  the 
most  important  factor  in  making  prices  was  the  war  itself, 
and  the  opinions  which  people  formed  from  time  to  time  as 
to  its  duration  and  result. 

After  the  close  of  the  war  and  until  1878  the  volume  of 
the  currency  was  substantially  unchanged,  but  prices  fell 
gradually  to  par,  />.,  to  the  level  of  1861.  They  ran  nearly 
parallel  with  the  gold  premium.  In  1878  the  silver-coinage 
act  went  into  operation,  adding  upwards  of  $25,000,000  per 
year  to  the  circulation.  In  1880  and  1881  there  was  a  very 
large  importation  of  gold.  The  volume  of  money  rose  from 
$818,000,000  in  1879  to  $1,243,000,000  in  1884;  that  is  50 
per  cent  in  five  years,  but  prices  showed  very  slight  variation. 
Taking  1860  as  the  datum  line  (100),  prices  were  at  96.6  in 
1879  and  at  99.4  in  1884.  The  increase  of  population  during 
this  period  of  five  years  was  not  more  than  15  per  cent. 

From  1884  to  1891  the  volume  of  money  rose  to 
$1,497,000,000  or  20  per  cent.  Probably  the  percentage 
of  increase  of  population  during  this  period  was  about  the 
same.  According  to  the  quantity  theory  prices  should  have 
remained  steady,  but  they  fell  seven  per  cent.  "  In  summing 
up  the  results  thus  far  indicated,"  says  Miss  Hardy,  "so  far 
as  the  history  of  prices  in  the  United.  States  throws  any  light 
upon  the  quantity  theory,  it  appears:  (i)  That  that  dogma 


424  REPRESENTATIVE  MONEY. 

in  its  general  theoretical  form  is  inapplicable  as  an  explana- 
tion of  this  given  set  of  actual  conditions;  (2)  That,  so  far 
as  it  may  be  at  all  valid,  its  influence  in  deter- 
Her  Conclusions,  mining  the  level  of  prices  is  of  far  less  im- 
portance than  is  commonly  supposed;  (3)  That 
prices  from  1861  to  1891  were  fixed  in  the  main  by  other 
causes  than  the  quantity  of  that  kind  of  money  which  was  in 
circulation  during  those  years."  These  conclusions  must 
be  accepted  unless  it  can  be  shown  that  Miss  Hardy's  figures 
are  wrong,  or  that  she  has  omitted  some  factor  of  importance 
from  the  reckoning. 

It  was  the  common  belief,  in  the  first  half  of  the  present 
century,  that  excessive  bank  issues  caused  an  advance  of 
prices  and  thus  fostered  speculations  and  produced  com- 
mercial crises.  Mr.  Amasa  Walker  attempted  to  prove  this 
by  figures  and  to  represent  it  geometrically  by  diagrams.1 
He  takes  ten  commodities  as  the  standard  of  prices,  viz., 
coffee,  leather,  molasses,  mess  pork,  cheese,  rice,  salt,  sugar, 
tobacco  and  wool.  He  omits  cotton  and  flour 
walker*8*  "because  their  prices  are  more  affected  by  the 
foreign  market  than  by  our  own."  Serious 
exception  might  be  taken  to  the  basis  of  calculation,  as  though 
the  prices  of  coffee,  sugar,  tobacco,  rice  and  mess  pork  were 
not  particularly  affected  by  foreign  markets.  But  this  may 
be  overlooked.  He  then  shows  the  per  capita  volume 
of  the  currency  for  each  year  from  1834  to  1859  and 
underneath  it  the  average  price  of  the  ten  articles  named, 
after  which  he  represents  the  results  by  a  diagram,  remarking 
upon  it : 

"  Several  important  facts  appear  in  this  figure.     The  first 

to  be  noticed  is  the  remarkable  correspondence  between  the 

first  and  second  lines,  rising  and  falling  together,  proving 

most  conclusively  by  their  agreement  through  so  long  a  series 

1  The  Science  of  Wealth,  by  Amasa  Walker,  p.p.  169-184. 


THE  QUANTITY  THEORY.  425 

of  years  that  prices  depend  upon  the  quantity  of  currency  in 
circulation." 

The  same  figures  might  equally  prove  that  the  quantity  of 

currency  in  circulation  depends  on  prices,  which  I  think  more 

likely.    Here  is  a  coincidence  indeed,  but  nothing  that  proves 

a  causal  influence  on  one  side  more  than  on 

"Nonconstat."     the  other.     Both  the  rise  of  prices  and  the 

increase  of  currency  may  be  produced  by  a 

third  cause,  as  for  example  a  sanguine  state  of  mind  on  the 

part  of  the  trading  community,  gradually  extending  to  all 

classes,  and  producing  a  general  eagerness  to  buy  things  with 

the  expectation  of  selling  them  at  a  higher  price. 

But  his  figures  do  not  prove  his  thesis.  In  1838  there  was 
a  fall  in  the  per  capita  circulation  from  17.61  to  12.44,  with- 
out any  change  of  prices.  In  the  next  year  there  was  a 
slight  rise  in  the  circulation  but  a  heavy  fall  of  prices,  from 
28.35  to  22.2 1.  In  fourteen  of  the  twenty-six  years  the  course 
of  prices  and  of  the  per  capita  circulation  run  parallel,  and 
in  twelve  they  run  contrariwise  to  each  other. 

Upon  the  vexed  question  whether  banks  can,  by  their  own 
volition,  inflate  the  currency  Professor  Dunbar  makes  the 
following  sound  observations  : 

"The  question  whether  really  convertible  notes  can  be 
issued  in  excess  has  been  the  subject  of  much  wearisome  and 
futile  discussion,  tending  to  secure  for  the  notes  far  more  than 
their  proper  share  of  attention.  It  has  already  been  shown, 
however,  that  the  question  whether  notes  shall  be  issued  or 
not,  is  one  which  in  modern  banking  is  not  settled  affirma- 
tively by  the  bank,  but  is  settled  by  the  creditor,  who  deter- 
mines for  himself  and  with  an  eye  to  his  own 
Dunbar's  Views  convenience>  whether  to  hold  his  right,  as 
against  the  bank,  in  the  form  of  a  note  or  of  a 
deposit.  If  he  and  creditors  generally  prefer  the  latter,  the 
bank  cannot  force  its  notes  into  circulation.  The  really 


426  REPRESENTATIVE  MONEY. 

serious  question  would  be  whether  the  bank  can  extend  the 
use  of  its  credit,  by  deposits  as  well  as  by  notes,  in  excess. 
This  is  as  much  as  to  ask  whether  the  bank  can  go  too  far 
in  the  purchase  of  securities,  or  in  other  words,  can  unduly 
stimulate  borrowers,  the  making  of  loans  being  the  purpose 
for  which  the  bank  extends  its  credit.  But  this  question 
cannot  be  answered  without  qualification.  If  we  observe  any 
period  of  ten  years,  we  shall  find  some  years  in  which  banks 
have  found  the  public  depressed  and  spiritless,  to  such  a 
degree  that,  with  every  motive  for  increasing  their  business, 
it  has  been  impossible  to  find  sound  commercial  paper  in 
sufficient  amount.  So  far  from  being  able  to  extend  their 
credit  in  excess,  banks  have  at  such  times  often  reduced 
their  capital  because  employment  for  it  could  not  be  found. 
Other  years  we  shall  find  in  which  the  public  spirit  was 
buoyant  and  adventurous,  and  in  which  the  banks  have 
fostered  and  increased  the  general  tendency  to  speculation, 
by  the  facility  with  which  they  have  given  the  use  of  their 
credit.  It  is  true,  then,  that  banks  cannot  extend  their  lia- 
bilities of  either  sort  except  in  response  to  a  demand  from 
the  public ;  it  is  also  true  that  in  certain  states  of  business 
this  demand  may  be  unduly  stimulated  by  their  action,  and 
that  issues  made  in  response  to  an  unhealthy  demand  are  in 
excess  of  the  proper  needs  of  the  community.  In  any  such 
expansion  of  bank  credit,  however,  bank  notes  must  generally 
play  the  least  important  part."  * 

1  Theory  and  History  of  Banking,  pp.  62,  64. 


THE  MECHANISM  OF  EXCHANGE.  427 

CHAPTER    XVIII. 
THE  MECHANISM   OF  EXCHANGE. 

A  "  BANK  STATEMENT  "  is  an  accounting,  rendered  by  the 
bank's  officers  to  its  shareholders,  which  is  published  for 
general   information.     The  officers  are  liable  to  the  share- 
holders for  the  capital    and   for   all   profits, 
Statements  whether  carried  to  the  surplus  fund  or  not. 

Thus  there  are  two  kinds  of  liabilities,  but 
they  are  generally  put  under  a  single  head.  We  will  separate 
them  for  the  sake  of  clearness,  taking  for  illustration  a  recent 
statement  of  one  of  the  largest  New  York  banks  : 

RESOURCES. 

Loans  and  discounts $22,974,519.13 

Overdrafts,  secured  and  unsecured     .     .  1,585.29 

U.  S.  bonds  to  secure  circulation  .     .     .  50,000.00 

U.  S.  bonds  on  hand 800,000.00 

Premium  on  U.  S.  bonds 35*956-93 

Stocks,  securities,  etc 797, 176.3 5 

Banking-house,  furniture  and  fixtures      .  1,064,250.00 

Other  real  estate  and  mortgages  owned  .  100.00 

Due  from  national  banks 1,523,193.29 

Due  from  state  banks  and  bankers     .     .  182,206.70 

Checks  and  other  cash  items     ....  13,322.50 

Exchanges  for  clearing  house    ....  1,701,098.55 

Notes  of  other  national  banks    ....  17,018.00 
Fractional  paper  currency,  nickels  and 

cents 1,551.10 

Lawful  money  reserve  in  bank,  viz.  : 

Specie 3,102,208.70 

Legal-tender  notes 4,750,589.00 


Amount  carried  forward    $37,004,875.54 


428  REPRESENTATIVE  MONEY. 

Amount  brought  forward  $37,004,875.54 
U.  S.  certif's  of  deposit  for  legal  tenders  1,300,000.00 
Redemption  fund  with  U.  S.  Treasurer 

(5  per  cent  of  circulation)  ....  2,250.00 

Due  from  U.  S.  Treasurer,  other  than  5 

per  cent  redemption  fund     ....  30,000.00 

Total     $38,347,025.54 

LIABILITIES. 
To  THE  PUBLIC. 

Deposits $17,855,883.87 

Due  to  other  banks 14,912,630.35 

Demand  certificates  of  deposit  ....  46,013.59 

Certified  checks 290,923.59 

Cashier's  checks  outstanding     ....  1 7,608.95 

Circulation 44,520.00 

Miscellaneous 30,441.87 

$33,198,022.22 
To  SHAREHOLDERS. 

Capital  stock 2,000.000.00 

Surplus  fund 2,500,000.00 

Undivided  profits .          647,988.32 

Dividends  unpaid 1,015.00 

Total     $38,347,025.54 

It  would  be  a  gain  to  clearness  if  all  bank  statements 
were  published  in  this  form.  Evidently  this  is  one  of  the 
banks  in  which  country  banks  are  allowed  to  keep  three- 
fifths  of  their  legal  reserve,  the  amount  due  to  other  banks 
being  much  larger  than  it  would  be  in  the  ordinary  course 
of  business.  For  these  deposits  a  low  rate 
Deposits  °n  of  interest  is  allowed,  usually  2  per  cent,  but 

sometimes  less.  The  question  is  frequently 
asked  whether  it  is  safe  banking  to  pay  interest  on  such 
deposits.  This  can  only  be  answered  by  experience.  That  it 


THE  MECHANISM  OF  EXCHANGE.  429 

is  done  from  year  to  year,  and  from  generation  to  generation, 
would  seem  to  warrant  an  answer  in  the  affirmative.  The 
clearing  house  banks  do  not  pay  interest  to  ordinary  deposi- 
tors, but  trust  companies  and  private  bankers  do  so  whenever 
they  can  lend  the  money  so  as  to  make  an  additional  profit 
for  themselves  —  which  is  not  always  the  case.  The  rate  of 
interest  on  deposits  is  subject  to  change  at  any  time. 

A  draft  is  an  order  in  writing  for  money,  drawn  upon  the 
custodian  of  funds  belonging  to  the  drawer,  or  subject  to  his 
order.  It  may  be  payable  at  sight  or  any  number  of  days 
after  date  or  after  sight.  It  does  not  presuppose  any  other 
commercial  transaction.  A  bill  of  exchange 
*s  a  sim^ar  instrument  based  usually  on  a  sale 
or  purchase  of  goods.  In  this  country  the 
word  draft  is  commonly  applied  to  all  instruments  of  this 
sort  that  are  payable  within  the  United  States,  and  the  term 
bill  of  exchange  to  those  payable  in  foreign  countries. 

Bills  of  exchange  are  usually  made  payable  to  the  order 
of  a  third  person.  A  bill,  if  not  payable  at  sight,  must  be 
presented  as  soon  as  possible  to  the  drawee.  If  he  owes  the 
money  according  to  the  tenor  of  the  bill,  he  should  write  the 
word  "accepted"  on  it  and  sign  his  name  under  it.  The 
bill  then  becomes  an  acceptance,  and  two  persons  are 
responsible  for  it.  If  the  holder  gets  it  discounted  at  his 
bank,  he  must  endorse  it,  and  thus  he  also  becomes  respon- 
sible for  it.  It  may  go  through  several  hands, 
Acceptances.  each  holder  endorsing  it  before  he  parts  with 
it.  It  acquires  strength  with  each  transfer, 
since  all  the  persons  who  have  endorsed  it  are  successively 
responsible  for  its  payment.  These  are  the  most  important 
circulating  instruments  of  modern  commerce,  since  nearly 
all  the  wholesale  transactions  of  the  world  are  effected  by 
them,  and  since  they  range  over  the  whole  world  and  are 
not  limited,  like  bank  notes,  to  their  parent  country.  Two 


430  REPRESENTATIVE  MONEY. 

or  more  bills  of  exchange  may  be  in  existence  at  one  time 
touching  one  lot  of  goods,  —  since  it  is  the  transfer  and  not 
the  creation  of  them  that  gives  rise  to  the  bills. 

A  letter  of  credit  is  an  instrument  of  writing  issued  by  a 
bank  authorizing  the  holder  of  it  to  draw  upon  the  issuing 
bank,  or  upon  some  affiliated  institution,  at  sight  or  other- 
wise, not  exceeding  in  the  aggregate  a  certain  sum.  It  is 
stipulated  in  the  body  of  the  instrument  that  the  amount  of 
all  drafts  negotiated  under  it  shall  be  endorsed  upon  it  so 
that  it  shall  always  show  how  much  of  the 
credit  remains  unexhausted.  The  names  of 
the  banks  or  persons  in  various  parts  of  the 
world  (correspondents  of  the  issuing  bank)  who  will  cash 
the  drafts  so  drawn  are  printed  on  it.  A  large  part  of  the 
foreign  purchases  made  by  merchants  is  effected  through 
letters  of  credit.  Such  drafts  are  usually  termed  bills  of 
exchange  also,  because  they  appertain  to  the  external  trade 
of  the  country. 

If  John  Doe  on  this  side  of  the  water  owes  $100  to 
Richard  Roe  on  the  other  side,  he  will  look  about  for  some 
neighbor  who  has  $100  coming  to  him  from  some  neighbor 
of  Richard  Roe.  If  he  finds  such  a  person,  he  will  buy  the 
claim  and  send  it  to  Richard,  who  will  collect  it ;  and  that 
will  square  the  international  trades  not  only  of  John  and 
Richard,  but  also  of  two  other  persons.  The  bits  of  paper 
that  pass  are  bills  of  exchange.  The  intervention  of  bankers 
is  a  mere  accessory,  not  altering  the  nature  of  the  transaction. 
Bankers  furnish  a  convenient  meeting-place  for  buyers  and 
sellers  of  bills  of  exchange,  and  they  charge  a  small  com- 
mission for  the  facilities  which  they  offer.  It  is 
Gold  Shipments,  evident  that  Joh^Doe  will  not  take  the  trouble 
to  draw  gold  from  his  bank  and  pack  it  up  and 
send  it  to  Richard  Roe,  paying  freight  and  insurance  charges, 
if  anybody  can  be  found  who  will  sell  him  a  claim  on  some- 


THE  MECHANISM  OF  EXCHANGE.  431 

body  abroad.  Not  until  all  other  means  have  been  exhausted 
will  he  resort  to  this  method  of  payment.  The  bankers  do 
not  like  to  take  this  trouble  any  more  than  John  Doe  likes 
it.  They  prefer  to  handle  bits  of  paper,  i.e.,  to  buy  and  sell 
claims  on  foreigners.  They  can  generally  make  more  money 
for  themselves  in  that  way,  because  they  can  sell  their  credit 
to  better  advantage. 

The  chief  business  of  banks  is  to  discount  bills  of  exchange 
so  that  the  maker  or  holder  may  have  the  present  value  of 
them  in  cash.  Bills  of  exchange  are  sometimes 
Bills  of  Lading,  accompanied  by  bills  of  lading,  warehouse 
receipts,  stocks  or  bonds,  which  are  specific 
titles  to  property,  the  bank  having  a  lien  on  the  property 
until  the  bill  is  paid.  These  are  simply  a  superior  kind  of 
bills.  They  command  a  lower  rate  of  interest  because  of 
their  higher  security,  and  in  a  stringent  money  market  they 
will  command  money  when  other  bills  are  refused.  All  other 
discounted  bills  are  loans  on  personal  security. 

Accommodation  paper  is  a  promissory  note,  which  the 
maker  offers  for  discount  in  order  that  he  may  have  the 
means  necessary  for  a  business  undertaking. 
Bankers  are  justly  suspicious  of  accommoda- 
tion paper,  yet  the  difference  between  such 
paper  and  other  unsecured  bills  is  not  so  great  as  it  seems. 
Both  are  loans  on  personal  security;  for  although  bills  of 
exchange  arise  from  goods  in  existence,  the  banker  (without 
a  bill  of  lading)  has  no  claim  on  any  particular  goods.  Upon 
this  point  Mr.  Macleod's  argument  is  entirely  sound.  He  says: 
"The  essential  distinction  between  real  and  accommoda- 
tion bills  is  that  one  represents  past  and  the  other  future 
transactions.  In  a  real  bill  goods  have  been  purchased  which 
are  to  meet  the  bill ;  in  an  accommodation  bill  goods  are  to 
be  purchased  which  are  to  meet  the  bill.  But  this  is  no 
ground  for  preference  of  one  over  the  other.  A  transaction 


432  REPRESENTATIVE  MONEY. 

which  has  been  done  may  be  Just  as  wild,  foolish  and  absurd 
as  one  that  has  to  be  done.  The  intention  of  engaging  in 
any  mercantile  transaction  is  that  the  result  should  repay  the 
outlay  with  profit.  There  is  no  other  test  of  its  propriety  but 
this,  in  a  mercantile  sense.  The  true  objections  to  accom- 
modation paper  are  of  a  different  nature.  As  real  bills  arise 
out  of  the  transfers  of  property,  the  number  of  them  must  be 
limited  in  the  very  nature  of  things.  However  bad  and 
worthless  they  may  be  individually,  they  cannot  be  multiplied 
beyond  a  certain  extent.  There  is  therefore  a  limit  to  the 
calamities  they  cause.  But  accommodation  bills  are  means 
devised  to  extract  funds  from  bankers  to  speculate  with,  and 
consequently  these  speculations  may  be  continued  as  long  as 
these  funds  can  be  extracted."  1 

The  "  cash  credits  "  of  the  Scotch  banks  consist  of  accom- 
modation paper  entirely.  They  are  authorizations  granted 
to  persons  to  draw  a  maximum  amount  within  a  certain  time, 
paying  interest  only  for  the  time  and  amount 
drawn.  There  are  ten  banks  in  Scotland,  with 
some  900  branches,  which  are  within  reach 
of  every  hamlet  in  the  country.  Cash  credits  are  loans  on 
personal  security,  never  less  than  two  names  being  required, 
generally  three  or  more.  "  These  credits  are  granted  to  all 
classes  of  society,  to  the  poor  as  freely  as  to  the  rich.  Every- 
thing depends  upon  character.  Young  men  in  the  humblest 
walks  of  life  begin  by  making  a  trifle  for  themselves.  This 
inspires  their  friends  with  confidence  in  their  steadiness 
and  judgment  and  they  become  sureties  for  them  on  a  cash 
credit."2 

A  very  large  percentage  of  the  cash  credits  of  the  Scotch 
banks  are  made  to  farmers,  but  they  are  invariably  on  per- 

1  Macleod,  i,  308,  309. 

2  Ibid,  i,  346.    See  also  The  Scotch  Banks  and  System  of  Issue,  by 
Robert  Somers,  p.  87. 


THE  MECHANISM  OF  EXCHANGE.  433 

sonal,  not  mortgage,  security,  and  they  are  not  allowed  to 
stagnate.    The  cash  credits  appear  among  the  deposits  on  one 

side  of  the  bank's  ledger,  and  among  "  bills 
"Cash  Credits."  discounted,  cash  accounts  and  other  advances  " 

on  the  other  side.  One  peculiarity  is  that  the 
deposits  are  always  paid  in  the  circulating  notes  of  the  bank, 
which  are  redeemable  in  gold  at  the  head  office.  Therefore 
it  is  not  necessary  to  keep  gold  at  any  other  place  than  the 
head  office,  but  in  practice,  if  anybody  wants  gold  at  a  branch 
bank  he  can  get  it.  The  condition  in  this  respect  is  very 
much  as  it  was  in  New  England  under  the  Suffolk  system, 
when  all  country  bank  notes  were  redeemed  at  par  in  Boston. 
Although  the  country  banks  were  not  relieved  of  the  necessity 
of  redeeming  their  notes  at  their  own  counters,  it  was  found 
that  about  as  much  gold  was  deposited  in  those  banks  from 
day  to  day  as  was  called  for  by  depositors  or  noteholders. 

Mr.  Somers  is  quite  justified  in  saying,  in  his  preface  : 
"  The  Banking  System  of  Scotland  is  probably  the  greatest 
and  most  original  work  which  the  practical  genius  of  the 
Scotch  people  has  produced  in  the  sphere  of  Political  and 

Social  Economics."  He  might  properly  have 
Note  issues.  said,  any  people.  There  is  no  deposited 

security  for  Scotch  bank  notes,  but  since 
1845  when  the  "currency  principle"  was  adopted  for  the 
note  issues  of  the  Bank  of  England,  the  same  principle 
was  forced  upon  the  Scotch  banks  also.  That  is,  they 
were  allowed  as  many  uncovered  notes  as  they  had  in  circu- 
lation at  that  time,  the  aggregate  amount  being  ,£2,676,350; 
but  for  any  larger  sum  they  are  required  to  have  at  the  head 
office  an  equal  amount  of  gold.  The  commissioners  of 
Stamps  and  Taxes  have  power  to  examine  banks  to  ascertain 
the  amount  of  their  gold,  but  the  power  is  never  exercised.1 

1  Our  Scotch  Banks,  their  Position  and  their  Policy,  by  William 
Mitchell,  p.  17. 


434  REPRESENTATIVE  MONEY. 

The  gold  reserves  of  the  Scotch  banks  are  only  5  per  cent  of 
their  deposits.  Their  returns  for  1883  showed  :  Capital  paid 
in  £9>052>000>  deposits  £82,650,535,  notes  £5,841,090,  gold 
£4, 1 94,3 1 2  .*  There  have  been  only  three  bank  failures  in  Scot- 
land of  any  importance,  those  of  the  Ayr  Bank  in  1772,  the 
Western  Bank  in  1857  and  the  City  of  Glasgow  Bank  in  1878. 
The  discount  of  commercial  paper  has  been  defined  by 
Mr.  A.  B.  Hepburn,  ex-Comptroller  of  the  Currency,  as  "  the 
swapping  of  well  known  credit  for  less  known  credit."  This 
is  an  apt  and  concise  description.  The  bank  first  establishes 
its  own  credit.  Then  it  is  the  banker's  business 

How  Banks  aid  J  to  find  out  what  persons  in  the  community  are 

in  the  Work  of  \ 

Production.        '  worthy  of  its  credit.    Credit  enables  those  who 

have  it  to  obtain  the  use  of  capital  which  they 
could  not  otherwise  acquire.  Capital  may  be  anything  which 
aids  man  to  produce  wealth  and  is  not  gratuitously  bestowed, 
such  as  tools,  materials,  food,  etc.  We  are  not  now  dealing 
in  nice  definitions,  but  merely  seeking  to  show  the  place  that 
banking  takes  in  the  work  of  production.  The  banker,  if 
he  understands  his  trade,  enables  the  most  deserving  persons 
in  the  community  to  get  possession  of  the  tools  and  materials 
of  industry  without  the  use  of  money.  The  most  deserving 
persons,  in  the  commercial  sense,  are  those  who  can  make 
the  most  profitable  use  of  tools  and  materials,  and  who  are 
believed  to  be  honest.  By  swapping  its  well  known  credit 
for  their  less  known  credit  the  bank  performs  a  service, 
which  they  are  willing  to  pay  for,  and  it  performs  a  service 
to  society  by  economizing  tools  and  materials.  Anything 
which  puts  these  things  into  the  right  hands  and  keeps  them 
out  of  the  wrong  hands  is  a  gain  to  the  world.  The  continued 
existence  of  a  bank  is  conclusive  and  incontestable  proof 
that  it  is  doing  this  thing,  for  if  it  were  not,  its  own  losses 
and  expenses  would  soon  eat  it  up. 

1  Macleod,  ii,  242. 


THE  MECHANISM  OF  EXCHANGE.  435 

It  has  been  shown  that  it  is  immaterial  whether  the  bank's 
credit  takes  the  form  of  deposits  or  of  circulating  notes  and 
that  the  banker  cannot  decide  which  form  it  shall  take.  The 
bank's  customers  alone  can  decide  this  question  and  it  is 
desirable  that  no  impediment  should  be  placed  in  the  way  of 
their  deciding  it,  since  they  will  infallibly  decide  it  rightly  if 
they  are  allowed  to.  They  will  draw  just  as  much  in  the 
form  of  notes  as  is  wanted  by  trade  and  industry  at  par- 
ticular times,  and  no  more.  When  the  crops  are  to  be  moved 
they  will  draw  more,  and  after  they  have  been  moved  they 
will  put  the  excess  back  in  the  banks.  This  is  what  happens 
in  Canada  now.  The  Canadian  banks  cannot  issue  notes  in 
excess  of  their  paid  up  unimpaired  capital,  but  within  this 
limit  they  can  issue  them  without  first  buying 

SuefSutic6  them  from  the  g°vernment-  Consequently 
they  can  meet  any  demand  at  once  when  it 
comes ;  and  when  the  demand  ceases  and  the  notes  return 
as  deposits,  it  costs  the  bank  nothing  to  lock  them  up.  They 
are  not  idle  capital  in  its  vaults,  because  they  have  cost 
nothing.  Under  our  system  each  dollar  of  notes  costs  at 
least  $1.23  (at  the  present  price  of  bonds  maturing  in  1907), 
and  it  is  always  a  question  whether  the  banker  can  get 
as  large  a  return  out  of  $1.23  thus  invested  as  he  could 
out  of  the  same  money  used  in  other  ways.  The  answer  to 
a  similar  question  in  Canada  after  fifteen  years'  experience, 
as  we  have  seen,  was  in  the  negative.1 

It  has  been  said  that  note  issues  are  the  small  side  of 
banking.    The  amount  of  cash  that  passes  over 

Percentage  of        bank  counters  in  New  York  City  is  only  two 

Cash  to  Credit 

in  Cities.  per  cent  of  the   whole   amount  of  payments 

that   are   made,   ninety-eight  per   cent   being 
made  by  checks  and  drafts.   Taking  all  the  national  banks  of 

1  Pp.   360,   361.      See  also  The  Currency  and  Banking  Law  of  the 
Dominion  of  Canada,  by  W.  C.  Cornwall,  pp.  18,  19. 


436  REPRESENTATIVE  MONEY. 

the  United  States  together,  the  proportion  of  cash  transactions 
is  about  nine  per  cent  against  ninety-one  per  cent  of  credit 
transactions.1  -  It  must  be  borne  in  mind,  however,  that  this 
percentage  represents  only  the  business  done  in  or  by  banks. 
It  does  not  include  the  hand-to-hand  business  of  communities 
where  no  banks  exist,  which  are  almost  always  made  with 
money. 


CHAPTER   XIX. 
CONCLUSION. 

ALTHOUGH  note  issues   are  the   small  side    of  banking 

operations  they  are  nevertheless  important  and  in  the  rural 

districts  the  most  important.      If  the  note-issuing  side  of 

the  national  banking  system  is  moribund,  or  if  it  is  sluggish 

and  inelastic  as  almost  everybody  admits,  it 

™^Baltimore      ought  to  be  amended.     Various  plans  to  this 

end  have  been  proposed.      One  of  these  is 

called  the  Baltimore  plan  because  it  was  recommended  by 

the  American  Bankers'  Association  at  its  meeting  in  Balti- 

1 A  "  census "  was  recently  taken  at  the  First  National  Bank  of 
Chicago  to  ascertain  the  proportion  of  cash  transactions  to  credit  trans- 
actions. The  following  things  passed  over  the  counter  in  a  single  day : 

Gold  coin       $9,885 

Silver  coin 15,826 

Gold  certificates 4,°45 

Silver  certificates 98,129 

Greenbacks 82,172 

Treasury  notes 25,496 

National  Bank  notes 32,263 

Total  cash     $269,816 

Checks,  drafts,  bills  of  exchange $5,398,945 

Percentage  of  cash  to  total  credits 5  per  cent. 


CONCLUSION.  437 

more  in  October,  1894.  The  full  text  is  printed  in  Appendix 
E.  It  dispenses  with  bond  security  for  bank  notes  and 
substitutes  therefor  a  guarantee  fund  equal  to  5  per  cent  of 
all  bank  notes  outstanding,  on  the  same  general  plan  as  the 
New  York  Safety  Fund  and  the  Canadian  "  Bank  Circulation 
Redemption  Fund."  It  restricts  note  issues  to  50  per  cent 
of  the  bank's  capital  except  in  emergencies,  when  it  may  be 
increased  to  75  per  cent,  and  the  government  remains 
responsible  as  now  for  the  notes  and  redeems  them  as  now, 
having  the  guarantee  fund  and  also  a  first  lien  on  the  assets 
of  failed  banks  and  on  the  shareholders'  liability,  and  also  the 
five  per  cent  redemption  fund  required  by  the  existing  law 
and  the  power  to  tax  all  circulating  notes  at  the  rate  of  ^ 
per  cent  per  annum. 

The  Baltimore  plan  does  not  propose  to  make  the  banks 
responsible  for  each  other's  notes  beyond  the  tax  of  %  per 
cent  per  annum.  After  the  5  per  cent  fund  is  accumulated 

the  tax  is  to  be  collected  only  as  it  is  needed 
Experience  *or  t^ie  PurPose  °^  reimbursing  the  government 

for  the  redemption  of  failed  bank  notes.  At 
the  Baltimore  meeting  ex-Comptroller  Hepburn  presented 
the  following  statement  prepared  for  him  by  his  successor  in 
office,  Mr.  Eckels  : 

Average  annual  circulation  of  national  banks,  1864 

to  1894  ..............  $282,801,252 

Outstanding  circulation  of  failed  national  banks       .        17,819,541 

Cost  to  the  general  government  on  ac- 
count of  national  banks  as  shown 
by  the  books  of  this  office  .  .  .  $7,610,169 

Additional  estimated  cost     .....     7,732,914 


Tax  of  i  of  i  per  cent  for  31  years    .     .     ,  .       21,917,093 

Tax  of  \  of  i  per  cent  for  31  years   .     .  .       17,533,674 


438  REPRESENTATIVE  MONEY. 

Commenting  upon  this  Mr.  Eckels  said :  "  These  figures 
verify  your  conclusions  to  the  effect  that  a  tax  on  outstanding 
circulation  of  one-fifth  of  one  per  cent  would  have  repaid  the 
cost  of  the  National  banks  to  the  general  government,  and 
also  that  a  tax  of  one-fourth  of  one  per  cent  would  have 
redeemed  the  notes  of  all  failed  national  banks,  —  in  fact,  a 
tax  of  two-fifths  of  one  per  cent  would  have  been  ample  to 
meet  both  the  cost  of  that  system  and  the  redemption  of  the 
notes  of  failed  national  banks." 

Another  letter  from  Mr.  Eckels  was  read  by  Mr.  Hepburn, 
viz. :  "  In  further  answer  to  your  letter  of  September  13,  you 
are  respectfully  advised  that  the  loss  to  the  general  govern- 
ment on  Account  of  circulation  of  failed  national  banks,  up 
to  January  i,  1894,  had  there  been  no  bond  deposit,  would 
have  been  $1,139,253.  Of  this  amount  $958,247  represents 
the  loss  by  banks  whose  trusts  are  still  open  and  may  pay 
further  dividends,  thus  reducing  the  amount  last  named. 
The  tables  showing  the  full  amount  of  dividends  paid  by  all 
failed  national  banks  are  not  yet  completed,  but  an  exami- 
nation of  the  accounts  of  each  trust  develops  the  fact  that 
there  would  have  been  no  loss  on  circulation  other  than 
above  indicated.  This  statement  applies  to  all  failures  down 
to  January  i,  1894." 

It  is  said,  however,  that  the  experience  of  the  past  is  not 
applicable  to  a  different  state  of  facts  ;  for  example,  to  a 
case  where  facilities  are  offered  for  the  start- 
^6pJ^ns  ing  of  banks  expressly  to  swindle  the  govern- 

ment or  the  public.  That  is  true,  and  it  raises 
the  question  whether  the  Baltimore  plan  would  furnish  such 
facilities  to  a  dangerous  extent. 

It  is  generally  assumed  that  any  five  persons  can  start  a 
bank  and  it  is  feared  that  a  great  many  such  groups  would 
be  organized  in  remote  and  inaccessible  places  for  the  pur- 
pose of  issuing  notes,  getting  value  for  them  and  then 


CONCLUSION.  439 

absconding.  But  this  is  a  misconception.  The  five  persons 
must  have  at  least  $100,000  to  begin  with,  unless  their  bank 
is  in  a  town  of  less  than  6000  inhabitants,  in  which  case  they 
must  have  at  least  $50,000,  and  must  have  the  approval  of 
the  Secretary  of  the  Treasury  in  addition  to  that  of  the 
Comptroller  of  the  Currency.  In  other  words,  the  starting 
of  a  bank  with  as  small  a  capital  as  $50,000  is  considered  a 
suspicious  circumstance  in  itself,  calling  for  extra  caution  on 
the  part  of  the  government. 

As  to  all  the  banks,  large  and  small,  50  per  cent  of  the 
capital  must  be  paid  in  at  once,  and  10  per  cent  each  month 
thereafter  —  that  is,  it  must  all  be  paid  in  within  five  months. 
If  the  Comptroller  permits  it  the  bank  may  commence 
business  when  50  per  cent  is  paid  in,  but  in  any  case  he 
must  "  examine  into  the  condition  of  such  association,  ascer- 
tain especially  the  amount  of  money  paid  in 

Conditions  of        on  account  of  its  capital,  the  name  and  place 

starting  New 

Banks.  w  residence  of  each  of  its  directors,  and  the 

amount  of  capital  stock  of  which  each  is  the 
owner  in  good  faith,  and  generally  whether  such  association 
has  complied  with  all  the  provisions  required  to  entitle  it  to 
engage  in  the  business  of  banking ;  and  cause  to  be  made 
and  attested  by  the  oaths  of  a  majority  of  the  directors  and 
by  the  president  or  cashier  of  the  association  a  statement  of 
all  the  facts  necessary  to  enable  the  Comptroller  to  determine 
whether  the  association  is  lawfully  entitled  to  commence  the 
business  of  banking." 

All  of  these  things  the  Comptroller  must  do,  but  there  are 
other  things  that  he  may  do.  He  may  appoint  a  special 
commission  to  inquire  into  the  character  and  antecedents  of 
the  intending  bankers,  and  even  if  the  report  is  favorable  he 
is  not  obliged  to  grant  them  a  certificate,  for  the  law  says : 
"The  Comptroller  may  withh'Id  from  an  association  his 
certificate  authorizing  the  commencement  of  business  when- 


440  REPRESENTATIVE  MONEY. 

ever  he  has  reason  to  suppose  that  the  shareholders  have 
formed  the  same  for  any  other  than  the  legitimate  objects 
contemplated  by  this  title." 

How  does  this  compare  with  the  reckless  way  in  which 
bank  charters  were  granted  during  the  life  of  the  Suffolk 
system  in  New  England  ?  Ninety  bank  charters  were  granted 
in  New  England  between  1831  and  1833. 
Forty-five  were  granted  in  Massachusetts  alone, 
and  thirty-three  more  in  1836.  Yet  in  the 
worst  lot  of  bank  failures  that  ever  took  place  in  Massachu- 
setts (those  of  1837)  all  the  notes  would  have  been  redeemed 
by  a  first  lien  on  the  assets  plus  a  safety  fund  of  5  per  cent 
on  all  bank  circulation. 

The  framers  of  the  Baltimore  plan  have  not  claimed  per- 
fection for  it.  Probably  it  would  be  a  wise  amendment  to 
provide  that  no  bank  shall  issue  circulating  notes  until  it  has 
been  in  operation  two  years,  and  not  then  if  the  Comptroller 
is  not  satisfied  with  its  character  and  management. 

The  Canadian  bank-note  system  has  the  same  general 
features  as  the  Baltimore  plan,  but  there  are  some  differences. 
For  example,  in  Canada  no  bank  is  allowed  to  start  with  a 
less  subscribed  capital  than  $500,000,  or  a 
less  Paid-uP  capital  than  $250,000.  As  the 
double  liability  of  shareholders  exists  there  as 
here,  it  results  that  $1,000,000  is  pledged  in  every  case 
before  a  bank  can  issue  a  note.  Under  our  system,  as 
already  said,  banks  may  be  started  as  small  as  $50,000. 
Now  it  is  a  fact  that  failures  are  not  more  frequent  among 
the  small  banks  than  among  the  large  ones.  The  whole 
number  of  national  banks  of  less  capital  than  $100,000  is 
1489,  out  of  a  total  of  3756  — a  little  less  than  two-fifths. 
The  whole  number  of  failures  of  such  banks  to  the  close  of 
the  year  1893  was  116,  out  of  a  total  of  246  —  again  a  little 
less  than  two-fifths.  Nevertheless,  the  Canadian  system  has 


CONCLUSION.  441 

a  foothold  which  a  similar  system  here  would  only  slowly 

gain.  For  this  reason  the  Baltimore  plan  contemplates  that  the 

government  shall  be  responsible  for  the  notes  of  failed  banks. 

At  the  meeting  of  New  York  Bankers  at  Saratoga,  July  10, 

1895,    Mr.    B.    E.   Walker,    President    of   the 

National  Branch    Canadian    Bankers'    Association,     made     the 
.BanKs. 

following    among   other   suggestions    for    the 

improvement  of  our  national  system : 

"Any  bank  with  a  paid-up  capital  of  $1,000,000  or  over 
to  be  allowed  to  issue  notes,  say,  to  the  amount  of  75  per 
cent  of  the  paid-up  capital,  secured  only  by  being  a  prior 
lien  on  the  assets  of  the  bank,  including  the  double  liability 
of  stockholders,  and  by  an  insurance  fund  of,  say,  5  per  cent, 
and  to  be  free  from  the  10  per  cent  tax,  such  banks  to  be 
allowed  to  establish  branches  within  the  state  in  which  the 
head  office  is  situated.  Any  bank  with  a  capital  of,  say, 
$5,000,000  or  over  to  have  the  same  privileges  as  to  note 
issues,  and  to  be  allowed  to  establish  branches  throughout 
the  United  States." 

Mr.  Walker  explained  the  advantages  of  the  branch  system, 
saying :  "  In  Canada  with  its  banks  with  forty  and  fifty 
branches,  we  see  the  deposits  of  the  saving  communities 
applied  directly  to  the  country's  new  enterprises  in  a  manner 
nearly  perfect.  The  bank  of  Montreal  borrows  money  from 
depositors  at  Halifax  and  many  points  in  the  Maritime 
Provinces  where  savings  largely  exceed  the  new  enterprises, 
and  it  lends  money  in  Vancouver  or  in  the  Northwest,  where 
the  new  enterprises  far  exceed  the  people's  savings."  No 
valid  objection  to  branch  banks  on  this  side  of  the  boundary 
is  perceived.  In  this  way  the  needs  of  the  smaller  towns 
for  banks  of  less  than  $50,000  capital  might  be  met  under 
the  national  system. 

It  was  the  opinion  of  most  of  the  bankers  who  were 
examined  by  the  Banking  committee  of  the  House  at 


442  REPRESENTATIVE  MONEY. 

Washington  in  December,  1894,  that  a  5  per  cent  safety 
fund  would  be  superabundant.  Nevertheless,  we  have  to 
satisfy  not  merely  experienced  bankers  but  the  people  of  the 
United  States,  who  have  been  accustomed  during  thirty-one 
years  to  look  upon  the  bank  note  as  a  government  note. 
Having  been  dispensed  for  a  whole  generation  from  the 
need  of  taking  any  thought  as  to  the  goodness  of  bank  notes, 
it  is  a  question  what  might  be  the  effect  of  a  change  of  system 
which  would  introduce  an  element  of  doubt  in  the  common 
mind.  If  we  had  been  running,  like  Canada,  for  a  generation 
without  bond  security  or  government  guarantee,  the  case 
would  be  different.  It  is  because  of  the  possible  effect  on 
the  public  mind  of  the  proposed  change  that  it  is  desirable 
to  continue  the  government  guarantee,  at  least  during  the 
transition  period,  the  government  having  power  to  recoup 
itself  by  the  tax  of  yz  per  cent  per  annum  on  all  bank  circu- 
lation, in  addition  to  its  first  lien  on  the  assets  of  failed  banks. 
Those  who  cannot  assent  to  this  plan  are  bound  to  offer 
a  better  one,  since  the  present  system  of  note  issues  is 
doomed  to  extinction  with  the  extinction  of  the  national  debt, 
if  not  sooner.  In  the  South  a  majority  of  the 

The  Tax  on  people  desire  a  repeal  of  the  10  per  cent  tax 

State  Bank 

Notes.  on  State  bank  notes.     They  think  that  their 

interests  would  be  promoted  by  a  return  to 
ante  bellum  conditions.  They  are  not  to  be  blamed  for  hold- 
ing this  view.  Their  bitter  cry  is  a  demand  that  credit  be 
allowed  its  proper  and  pristine  place  in  bank  note  issues. 
Their  banks  immediately  before  the  war  were  generally 
sound,  and  they  supplied  a  credit  currency  which  was 
elastic  and  suited  to  the  needs  of  the  community.  If  the 
10  per  cent  tax  were  now  proposed  for  the  first  time  it 
would  be  rejected.  Even  when  it  was  enacted,  as  a  war 
measure,  early  in  1865,  it  was  carried  by  a  majority  of  only 
one  vote  in  the  House  and  two  in  the  Senate,  after  a  stiff 


CONCLUSION.  443 

fight.  But  the  tax -has  brought  about  a  new  state  of  things, 
so  that  the  question  presented  to  us  is  whether  we  ought  to 
allow  heterogeneousness  of  bank  notes  again.  The  reasons 
against  doing  so  have  already  been  stated.  It  is  evident,  too, 
that  if  the  Baltimore  plan  or 'any  other  plan  were  adopted 
to  secure  a  real  credit  currency,  State  bank  notes  could  do 
nothing  for  the  people  of  the  rural  communities  which 
national  bank  notes  could  not  do  better  —  better,  because 
under  the  plan  proposed  the  notes  would  be  guaranteed  by 
the  national  government  and  would  accordingly  enjoy  the 
highest  possible  credit.  This  would  be  as  much  for  the 
advantage  of  the  people  as  of  the  banks  themselves.  It  can- 
not be  too  often  repeated,  that  credit  is  of  the  essence  of 
banking  and  that  the  element  of  credit  is  eliminated  from 
national  bank  notes.  The  evil  is  not  felt  in  the  large  towns 
and  cities,  because  there  bank  checks  take  the  place  of  bank 
notes,  and  there  is  no  limit  to  the  use  of  checks. 

The  success  of  clearing  house  certificates  in  quelling 
panics  has  suggested  an  extension  of  that  system  to  the 
purposes  of  ordinary  bank  note  issues.  The  basic  principle 
of  the  loan  certificates  is  the  "  pooling  "  of  bank  reserves, 
which  is  of  course  voluntary,  and  is  resorted  to  only  on  rare 
occasions,  and  then  only  in  order  to  avoid  a 

Proposed  common  catastrophe.    Would  all  the  banks  of 

Clearing:  House  ,          .        .         .  . .  .     . 

Currency.  a  particular  clearing  house  district  put  their 

reserves  in  permanent  pledge  in  this  way? 
Probably  not.  Many  of  them,  in  the  larger  cities,  care 
nothing  about  circulating  notes  any  way,  and  would  not 
issue  them  if  they  could  do  so  freely.  Of  course  there  would 
be  no  inducement  for  them  to  pledge  their  reserves  for  other 
banks.  Moreover,  as  Professor  Dunbar  says,  "  what  is 
effective  by  way  of  relief  is  not  necessarily  salutary  as  a 
regular  system.  The  relief  in  this  case  comes  from  the  fact 
that  under  the  arrangement  for  combined  reserves  every 


444  REPRESENTATIVE  MONEY. 

bank  is  completely  discharged  from  any  real  sense  of 
responsibility  for  cautious  action.  Slight  as  its  share  of 
responsibility  may  be  under  ordinary  circumstances,  under 
this  arrangement  it  is  free,  to  expand  or  to  neglect  ordinary 
precautions  at  pleasure  ;  the  Arrangement  is  entered  into  for 
the  precise  object  of  thus  setting  it  free,  and  it  is  in  the 
public  knowledge  of  this  fact  that  the  virtue  of  the  arrange- 
ment consists.  But  under  ordinary  circumstances  it  is  not 
by  any  diminished  sense  of  responsibility  that  the  way  to 
sound  banking  and  to  the  ultimate  good  of  the  community 
is  to  be  found."  1 

It  must  be  admitted,  however,  that  good  authorities  are  to 
be  found  in  opposition  to  any  note  issues  that 

are  nOt  secured  bv  the  Pledge  of  equal  or 
greater  value  in  the  hands  of  public  officers. 
It  is  not  the  purpose  of  this -book  to  decide  the  question 
dogmatically,  but  to  stimulate  thought  among  those  who 
must  decide  it. 

1  Theory  and  History  of  Banking,  p.  81. 


APPENDIXES. 


APPENDIX    A. 


RECENT  BIMETALLIST  MOVEMENTS  IN  GERMANY. 

THE  recent  outbreak  of  bimetallism  in  Germany  has  its 
seat  and  foundation  in  the  low  price  of  grain.  In  the  begin- 
ning of  1894  the  government  submitted  to  the  Reichstag  a 
treaty  of  commerce  with  Russia  admitting  cereals  at  a  low 
rate  of  duty.  The  Agrarian  or  land-owning 
party  was  violently  opposed  to  this  measure, 
but  Chancellor  Caprivi  considered  it  indis- 
pensable as  a  means  of  conciliating  ^Russia.  In  order  to 
appease  the  Agrarians  the  Chancellor,  in  reply  to  an  address 
in  favor  of  bimetallism  presented  to  him  by  an  aristocratic 
society  of  landowners  in  East  Prussia,  condescended  to 
say  that  the  money  question  might  be  reexamined  from 
certain  points  of  view.  This  concession  was  reenforced  by 
the  Prussian  Minister  of  Agriculture,  Herr  von  Heyden,  who 
had  no  decided  opinion  on  the  monetary  question,  but  was 
inclined  to  make  some  concessions  to  the  Agrarians.  The 
result  was  the  appointment  of  a  commission  in  the  spring  of 
1894  to  consider  the  question  whether  means  could  be  found 
for  raising  the  price  of  silver  and  making  it  more  stable,  it 
being  assumed  that  low  and  fluctuating  prices  of  commodities 
were  an  injury  to  Germany. 

The  commission  was  appointed  by  the  Imperial  Govern- 
ment.    It   consisted  of   sixteen  members.     Eight  of  them 
were  decided  supporters  of  the  gold  standard, 
six  were  equally  decided  bimetallists,  and  the 
other  two  inclined  to  the  opinion  that  some- 
thing ought  to  be  done  for  silver  if  it  could  be  done  without 


448  APPENDIX  A. 

upsetting  the  gold  standard.  The  gold  standard  men  were 
reduced  to  seven  by  the  absence  of  the  member  from  Ham- 
burg, who  attended  only  one  meeting. 

The  president  of  the  commission  was  Count  Posadowsky- 
Wehner,  Secretary  of  State  for  the  Imperial  Treasury,  a 

member  of  the  Prussian  landed  aristocracy, 
Posadowsk  w^  a  sma^  income,  and  not  specially  fitted 

by  study  or  experience  to  consider  such  a 
question.  He  was  selected  for  the  place  by  the  personal 
favor  of  the  Emperor.  His  integrity  was  beyond  question 
and  he  did  his  best  to  fit  himself  for  the  duties  of  his  new 
position,  which  he  discharged  with  strict  impartiality.  In  so 
far  as  he  had  any  bias  it  was  against  bimetallism. 

The  commission  took  up  the  original  programme  —  the 
question  of  raising  tjie  price  and  ensuring  the  stability  of 
silver.  The  two  moderate  bimetallists,  Prof.  Lexis *  and 
Mr.  Koenigs,  made  a  proposition  looking  to  a  larger  use  of 

silver  by  augmenting  the  weight  of  the  silver 
Prof.  Lexis.  coins  in  actual  use  to  a  ratio  corresponding  to 

i  to  21  or  i  to  24,  such  change  to  be  based 
upon  a  convention  with  other  governments,  especially  that  of 
Great  Britain,  which  should  engage  to  reopen  the  Indian 
mints.  This  proposition  was  rejected  by  all  the  other  mem- 
bers on  both  sides.  Another  proposition  looking  to  restric- 
tions on  silver  mining  by  governmental  action  was  negatived 
so  decidedly  that  the  mover  withdrew  it. 

A  motion  was  then  made  for  an  international  conference 
to  promote  the  free  coinage  of  both  metals  at  an  agreed  ratio. 

Those  who  favored  this  project  did  not  express 

any  -decided  opinion  as  to  the  numerical  ratio 

to  be  adopted,  nor  as  to  the  adhesion  of  Eng- 
land, but  it  was  evident  that  they  favored  the  ratio  of  15% 

1  Professor  Lexis  has  since  taken  a  decided  stand  against  bimetal- 
lism. 


BIMETALLIST  MOVEMENTS  IN  GERMANY.         449 

and  that  they  thought  that  the  adhesion  of  England  might 
be  dispensed  with.  Six  members  favored  this  policy ;  the 
other  nine  were  entirely  opposed  to  it. 

Finally  Dr.  Otto  Arendt,  the  leading  bimetallist  in 
Germany,  offered  what  he  called  a  temporary  measure, 
substantially  a  plan  proposed  by  Mr.  Pierson, 
Dr.  Arendt.  formerly  Finance  Minister  of  the  Netherlands. 
According  to  this  plan  the  several  governments 
would  agree  upon  a  system  of  international  exchange  of 
silver  and  gold  through  the  intervention  of  their  state  banks, 
which  should  be  obliged  to  buy  and  sell  the  two  metals  at 
certain  prices  to  be  fixed  periodically.  This  plan  was  so  ob- 
jectionable to  the  other  bimetallists  that  they  refused  to  follow 
their  leader.  So  it  was  dropped  without  further  discussion. 

A  special  feature  of  the  proceedings  consisted  in  an 
examination  of  geological  experts,  which  was  undertaken  at 
the  instance  of  the  bimetallists,  who  desired  to  bring  before 
the  commission  their  great  authority,  Professor 
Prof.  Suess.  Suess  of  Vienna,  who  began,  twenty  years  ago, 

predicting  the  early  exhaustion  of  the  gold 
mines  of  the  universe  and  who  still  persists  in  that  belief. 
Professor  Suess  was  accordingly  invited,  but  the  other  side 
insisted  upon  summoning  other  geological  authorities.  The 
result  was  a  prolonged  disputation  in  which  the  weight  of 
testimony  was  against  Professor  Suess  and  his  theories,  .^x 

After  twenty-one  sessions  the  president  closed  the  proceed- 
ings with  the  single  remark  that  these  protracted  debates 
might  be  useful  as  showing  how  difficult  it  was 
Adjournment.  to  find  something  which  would  evidently  be 
desirable  if  it  were  attainable.  Thus  the  com- 
mission left  things  just  where  it  found  them,  which  was  a 
practical  defeat  for  the  bimetallists. 

From  this  time  to  the  dismissal  of  Chancellor  Caprivi  there 
was  a  lull,  but  directly  after  that  event  the  bimetallists  started 


450  APPENDIX  A. 

up  afresh,  and  in  high  spirits.  The  fall  of  Caprivi  was 
followed  by  that  of  the  Prussian  Minister  of  Agriculture, 
Herr  von  Hey  den,  who  though  not  a  partisan  of  the  gold 
standard  and  rather  favorable  to  the  fads  of  the  Agrarians, 
is  a  man  of  sound  temper  and  fully  aware  of  the  dangers  of 
headlong  adventures  on  the  money  question. 
^s  successor»  Herr  von  Hammerstein,  was  a 
thorough  Agrarian  and  had  been,  before  his 
nomination,  president  of  the  Agrarian  League  (Bund  der 
Landwirthe].  Still,  he  was  not  altogether  impressed  with 
the  virtues  of  bimetallism,  but  rather  inclined  to  drift  with 
the  tide.  More  important  than  this  change  was  the  general 
derangement  caused  by  the  downfall  of  Caprivi,  which  was 
a  great  victory  for  the  extreme  Agrarian  party  over  the  sound 
and  moderate  ideas  of  the  Chancellor.  His  successor,  Prince 
von  Hohenlohe,  is  by  no  means  a  reckless  person,  but  he  is 
so  old  and  infirm  that  his  personal  weight  is  of  little  signifi- 
cance and  he  is  unable  to  offer  serious  resistance  to  the 
demands  of  the  landed  aristocracy,  who  are  the  daily 
companions  of  the  Emperor  and  who  besiege  him  with 
complaints  that  the  whole  agriculture  of  Germany  is  going 
to  the  dogs  if  it  is  not  helped  by  radical  measures,  of  which 
they  affirm  that  bimetallism  is  one  of  the  most  effective. 

In  this  state  of  things  the  Agrarian  leaders  in  the  Reichs- 
tag prepared  a  motion  asking  the  government  to  take  the 
initiative  for  assembling  a  new  international 
monetary  conference.  The  motion  was  immedi- 
ately signed  by  the  two  Conservative  parties 
and  by  nearly  the  whole  Catholic  party.  But  the  greatest 
amazement  was  produced  when  the  paper  was  found  to  bear 
also  the  signatures  of  nearly  all  the  National  Liberals  includ- 
ing their  old  leader,  Herr  von  Bennigsen.  This  party  had 
heretofore  been  the  stanch  defender  of  the  gold  standard, 
and  its  new  attitude  was  interpreted  as  a  very  significant 


BIMETALLIST  MOVEMENTS  IN  GERMANY.         451 

change  in  the  situation  and  especially  as  implying  that  the 
government  had  encouraged  the  movement.  This  was  much 
more  than  the  government  had  ever  before  condescended  to 
do,  i.e.,  to  make  advances  to  other  nations  looking  to  a  monetary 
treaty.  Now  Chancellor  Hohenlohe  declared  that  they  were 
inclined  to  submit  such  a  proposition  to  the  Federal  Council, 
keeping  open  a  line  of  retreat,  however,  by  adding  the  words 
"without  prejudice  to  the  Imperial  standard."  After  him 
Count  Posadowsky  made  still  further  advances  to  the  bimetal- 
lists  and  the  result  was  that  the  motion  that  the  government 
issue,  as  soon  as  possible,  an  invitation  for  a  monetary 
conference,  to  the  end  of  an  international  solution  of  the 
standard  question,  was  adopted  by  a  very  large  majority. 
The  minority  was  composed  of  the  Progressists,  the  Southern 
Democrats,  the  Socialists  and  five  or  six  National  Liberals. 
The  National  Liberals  attempted  to  justify  their  change 
of  policy  by  saying  that  they  did  not  mean  to  vote  for 
bimetallism,  but  merely  for  a  conference  that  possibly  might 
find  some  measure  for  a  better  state  of  things. 

But  this  was  not  the  true  explanation-  They 
acted  merely  under  Agrarian  pressure  that 
had  invaded  their  party  and  their  constituencies.  The 
peasants  are  mad  with  the  silver  craze,  especially  in  the 
North  of  Germany,  and  the  fear  of  being  denounced  to  their 
constituents  as  enemies  of  silver  drove  them  to  vote  for 
something  which  they  did  not  believe  in.  Privately  they 
hope  that  all  these  measures  will  prove  impracticable  and 
that  the  new  conference,  if  there  is  one,  will  end  miserably 
like  all  the  others. 

The  government  has  proceeded  slowly.  It  first  submitted 
the  question  to  the  Staatsrath,  which  being  composed  chiefly 
of  the  Agrarian  element,  agreed  to  the  conference.  Only 
twelve  members  were  of  the  contrary  opinion  and  the  debate 
was  very  animated.  The  Staatsrath,  a  kind  of  Privy  Council, 


452  APPENDIX  A. 

has  no  real  power,  and  only  gives  advice  to  the  Prussian 
Monarch.    The  Emperor  is  said  to  be  for  the  gold  standard, 
but  not  disposed  to  take  an  active  part  in 
lavements  deciding  the  question.     Notwithstanding  the 

presence  of  some  active  bimetallists  in  the 
government  councils  it  is  evident  that  the  majority  would 
be  glad  to  meet  some  insurmountable  obstacle  to  the  calling 
of  a  conference,  first,  because  they  have  a  secret  feeling  that 
it  is  all  labor  lost ;  and  second,  because  they  do  not  possess 
sufficient  knowledge  of  the  special  subject  to  feel  entirely 
sure  of  their  footing. 

Meanwhile  a  contrary  movement  has  sprung  up  among 
the  commercial  classes.     The  Handelstag,  the  body  which 
represents  all  the  chambers  of  commerce  in  Germany,   at 
once  uttered  a  most  energetic  protest  against  the  govern- 
ment's yielding  to  the  bimetallists  and  against 
rci      a  new  conference.     This  was  followed  by  a 
series    of   great   meetings   in   the   large   com- 
mercial cities  at  which  resolutions  were  passed  protesting 
solemnly  against  any  tampering  with  the  monetary  standard. 
A  league  for  the  preservation  of  the  gold  standard  (  Verein 
zum  Schntz  der  dentschen  Goldwahrung)  has  been  formed  and 
is  now  prosecuting  a  vigorous  campaign  of  education. 

What  the  outcome  may  be   it   is   impossible   to   predict. 
Late  telegraphic  advices  are  to  the  effect  that  a  majority  of 
the  Federal  Council   has  voted  against  call- 
Uncertain11          in£  a  conierence-     It:  is  certain  that  Bavaria 
and  Wiirtemberg  have  pronounced  against  it 
strongly  and  that   even   the   Prussian   Diet  has  voted  that 
nothing  should  be  done  in  the  line  of  bimetallism  without 
the  cooperation  of  England. 


APPENDIX  B. 


MR.  SHAW'S  HISTORY  OF  CURRENCY. 

SINCE  the  first  half  of  this  book  was  stereotyped  a  volume 
of  some  400  pages,  entitled  "The  History  of  Currency,  1252 
to  1894,"  by  W.  A.  Shaw,  has  been  published  in  London. 
Mr.  Shaw  has  done  for  the  currencies  of  the  civilized  world 
what  Lord  Liverpool  did  for  that  of  England  in  his  classical 
work,  "  On  the  Coins  of  the  Realm."  Mr.  Shaw's  work, 
like  that  of  Lord  Liverpool,  possesses  a  permanent  historical 
interest  far  transcending  the  present  battle  of  the  standards. 
The  efforts  of  the  human  race  to  extricate  itself  from  the 
coil  of  the  double  standard  of  silver  and  gold  are  sketched 
for  a  period  of  more  than  six  centuries.  Society  was  at 
dreadful  strife  with  itself,  and  did  not  know  what  was  the 
cause  of  its  misery.  But  it  found  out  at  last,  and  delivered 
itself  from  its  torment,  and  now  some  people  propose  that 
it  shall  put  on  the  shirt  of  Nessus  once  more,  as  an  act  of 
volition.  Mr.  Shaw  rightly  says  in  his  preface  : 

"  The  modern  theory  of  bimetallism  is  almost  the  only 
instance  of  a  theory  growing  not  out  of  practice,  resting  not 
on  data  verified,  but  on  data  falsified  and  censure-marked. 
No  words  can  be  too  strong  of  condemnation  for  the  theoriz- 
ing of  the  bimetallist  who  by  sheer  imaginings  tries  to  justify 
theoretically  what  has  failed  in  five  centuries  of  history, 
and  to  expound  theoretically  what  has  proved  itself  incapable 
of  solution  save  by  cutting  and  casting  away." 


454  APPENDIX  B. 

To  enumerate  all  the  changes  of  ratio  between  silver  and 
gold  in  all  the  countries  of  Europe  during  the  period  covered 
by  Mr.  Shaw's  researches  would  be  like  counting  the  stars 
in  the  Milky  Way.  For  example,  in  France  the  ratio  "was 
changed  in  a  single  century  more  than  a  hundred  and  fifty 
times,"  and  these  changes  were  not,  as  is  commonly  supposed, 
mere  arbitrary  acts  of  the  sovereign  to  fill  the  royal  treasury. 
They  were  due  to  variations  in  the  market  value  of  the  two 
metals  after  the  legal  ratio  had  been  fixed.  In  almost  every 
instance  the  initial  steps  for  a  change  in  the  legal  ratio  were 
taken  by  the  trading  community.  What  took  place  in  France 
was  the  common  experience  of  Germany,  England,  the 
Netherlands,  and  Italy.  And  so  they  went  on  weltering  in 
ratio  changes  till  the  nineteenth  century,  when  they  found 
out  what  was  the  matter  and  applied  the  remedy.  And  now 
they  are  asked  to  plunge  in  again  and  welter  a  while  longer. 

The  bimetallist  contention  that  the  action  of  France  in 
fixing  the  legal  ratio  of  15^  to  i  kept  the  market  ratio  of 
the  two  metals  steady  from  1803  to  1873  has  been  in  a 
staggering  way  for  some  time.  Mr.  Shaw  gives  it  the  coup 
de  grace.  "  At  no  point  of  time,"  he  says,  "  during  the 
present  century  has  the  actual  market  ratio,  dependent 
on  the  commercial  value  of  silver,  corresponded  with  the 
French  ratio  of  15^,  and  at  no  point  of  time  has  France 
been  free  from  the  disastrous  influence  of  that  want  of 
correspondence  between  the  legal  and  commercial  ratios. 
The  opposite  notion,  which  prevails  and  finds  expression  in 
the  ephemeral  bimetallic  literature  of  to-day,  is  simply  due 
to  ignorance." 

It  is  perhaps  well  to  explain  why  the  great  gold  discoveries 
of  California  and  Australia  in  the  fifties  did  not  produce  a 
greater  divergence.  The  answer  is  easy.  Modern  commerce 
took  a  great  start  in  the  fifties.  It  absorbed  the  new  gold 
with  avidity.  Gold  was  exactly  suited  to  the  new  state  of 


MR.  SHAW'S  HISTORY  OF  CURRENCY.  455 

things,  because  it  possessed  much  value  in  little  bulk  and 
weight.  So  the  mystery  of  the  comparative  steadiness  of  the 
market  ratio  during  the  great  outpouring  of  gold  in  the  fifties 
is  explained  by  natural  causes,  and  without  reference  to  the 
French  bimetallic  law. 


APPENDIX  C. 


AVERAGE  MARKET  RATIO  OF  SILVER  TO  GOLD  BY  YEARS. 

From  1793  (when  our  mint  was  established)  to  1895. 

From  the  reports  of  the  Director  of  the  mint. 

[NOTE.  —  From  1793  to  l&32  the  ratios  are  taken  from  the  tables  of 
Dr.  A.  Soetbeer;  from  1833  to  1878  from  Pixley  and  AbelFs  tables; 
and  from  1878  to  1895  from  daily  cablegrams  from  London  to  the 
Bureau  of  the  Mint.] 


Year. 

Ratio. 

Year. 

Ratio. 

Year. 

Ratio. 

Year. 

Ratio. 

1793 

15.00 

1819 

'5-33 

1845 

15.92 

1871 

'5-57 

1794 

15-37 

1820 

15.62 

1846 

15.90 

1872 

15.63 

1795 

'5-55 

1821 

J5-95 

1847 

15.80 

1873 

15.92 

1796 

15-65 

1822 

15.80 

1848 

'5-85 

1874 

16.17 

1797 

1823 

15.84 

1849 

I5-78 

1875 

16.59 

I798 

J5-59 

1824 

15.82 

1850 

1876 

17.88 

1799 

15-74 

1825 

15.70 

1851 

15.46 

1877 

17.22 

1800 

15.68 

1826 

15-76 

1852 

J5-59 

1878 

17.94 

1801 

15.46 

1827 

r5-74 

1853 

J5-33 

I879 

18.40 

1802 
1803' 

15.26 

1828 
1829 

I5-78 
15-78 

1854 
I855 

'5-33 
I5-38 

1880 

1881 

18.05 

18.16 

1804 

15.41 

1830 

15.82 

1856 

I5-38 

1882 

18.19 

1805 

15-79 

1831 

I5-72 

1857 

15-27 

1883 

18.64 

1806 

iS-S2 

1832 

15-73 

1858 

15-38 

1884 

18.57 

1807 

1833 

r5-93 

1859 

1885 

19.41 

1808 

1  6.08 

1834 

!5-73 

1860 

15.29 

1886 

20.78 

1809 

15.96 

1835 

15.80 

1861 

I5-50 

1887 

21.13 

1810 

J5-77 

1836 

15-72 

1862 

J5-35 

1888 

21.99 

1811 

'5-53 

1837 

15-83 

1863 

J5-37 

1889 

22.09 

1812 

i6.n 

1838 

'5-85 

1864 

:5-37 

1890 

19.76 

1813 

16.25 

1839 

15.62 

1865 

1891 

20.92 

1814 

15.04 

1840 

15.62 

1866 

I5-43 

1892 

23.72 

1815 

15.26 

1841 

15.70 

1867 

T5-57 

1893 

26.49 

1816 

15.28 

1842 

15-87 

1868 

T5-59 

1894 

32-56 

1817 

15.11 

1843 

!5-93 

1869 

15.60 

18951 

30-73 

1818 

15-35 

1844 

15-85 

1870 

'5-57 

1  July  i. 


APPENDIX   D. 


SILVER  COINAGE  OF  THE  UNITED  STATES. 

OUR  silver  coinage  properly  falls  under  three  heads  : 
(i)  from  1793  to  1853,  during  which  time  silver  was  coined 
for  private  persons  without  limit,  and  all  such  coins  were 
full  legal  tender;  (2)  from  1853  to  1873,  during  which  time 
the  dollars  only  were  coined  for  private  persons  and  were 
full  legal  tender,  all  smaller  denominations  being  coined  on 
government  account  and  being  only  limited  legal  tender  ; 
(3)  J873  to  1894,  when  no  silver  (except  trade  dollars)  was 
coined  for  private  persons,  but  all  on  government  account. 
The  figures  are  these  : 

1793  to  1853. 

DOLLARS.  ALL  OTHER. 

$2,407,590  $76,708,309.40 

1833  to  1873. 
5,638,248  60,361,246.70 

1873  to  1894. 

419,333,208  78,416,152.05 


APPENDIX  E. 


THE  BALTIMORE  PLAN. 

AT  the  annual  meeting  of  the  American  Bankers'  Associa- 
tion, held  at  Baltimore,  October  10,  n,  1894,  Mr.  Chas.  C. 
Homer,  President  of  the  Second  National  Bank  of  that  city, 
in  behalf  of  the  Baltimore  Clearing  House  Association, 
presented  the  following  outline  of  a  plan  for  amendments 
of  the  National  Banking  law.  After  debate  it  was  adopted 
by  the  Association,  some  members  who  voted  for  it  saying 
they  desired  some  additions  to  be  made  to  it  hereafter. 
This  is  now  known  as  the  Baltimore  Plan.  It  is  understood 
that  all  parts  of  the  National  Banking  law  are  to  remain  in 
force  except  as  here  modified : 

Sec.  I.  —  The  provision  of  the  National  Bank  act,  requiring 
the  deposit  of  bonds  to  secure  circulating  notes  hereafter 
issued,  shall  be  repealed. 

Sec.  II.  —  Allow  the  banks  to  issue  circulating  notes  to  the 
amount  of  fifty  per  centum  of  their  paid-up,  unimpaired 
capital,  subject  to  a  tax  of  one-half  of  one  per  centum  per 
annum,  upon  the  average  amount  of  circulation  outstanding 
for  the  year ;  and  an  additional  circulation  of  twenty-five 
per  centum  of  their  paid-up,  unimpaired  capital,  subject 
both  to  the  tax  of  one-half  of  one  per  centum  per  annum  and 
to  an  additional  heavy  tax  per  annum  upon  the  average 
amount  of  such  circulation  outstanding  for  the  year  ;  said 
additional  twenty-five  per  centum  to  be  known  as  "  Emergency 
Circulation." 


THE  BALTIMORE  PLAN.  459 

Sec.  III.  —  The  present  tax  of  one  per  centum  per  annum 
upon  the  average  amount  of  circulation  outstanding  shall  be 
paid  to  the  Treasurer  of  the  United  States  as  a  means  of 
revenue,  out  of  which  the  expenses  of  the  office  of  the  Comp- 
troller of  the  Currency,  the  printing  of  circulating  notes,  etc., 
shall  be  defrayed. 

The  excess  over  one-half  of  one  per  centum  of  the  tax 
imposed  upon  the  "  Emergency  Circulation  "  shall  be  paid 
into  the  "Guarantee  Fund,"  referred  to  in  Sec.  VI. 

Sec.  IV.  —  The  banks  issuing  circulation  shall  deposit  and 
maintain  with  the  Treasurer  of  the  United  States  a  "  Redemp- 
tion Fund"  equal  to  five  per  centum  of  their  average  outstand- 
ing circulation,  as  provided  for  under  the  existing  law. 

Sec.  V.  —  The  redemption  of  the  notes  of  all  banks,  solvent 
or  insolvent,  to  be  made,  as  provided  for  by  the  existing  law. 

Sec.  VI.  —  Create  a  "  Guarantee  Fund"  through  the  deposit 
by  each  bank  of  two  per  centum  upon  the  amount  of  circu- 
lation received  the  first  year.  Thereafter  impose  a  tax  of 
one-half  of  one  per  centum  upon  the  average  amount  of  out- 
standing circulation,  the  same  to  be  paid  into  this  fund  until 
it  shall  equal  five  per  centum  of  the  entire  circulation  out- 
standing, when  the  collection  of  such  tax  shall  be  suspended, 
to  be  resumed,  whenever  the  Comptroller  of  the. Currency 
shall  deem  it  necessary. 

The  notes  of  insolvent  banks  shall  be  redeemed  by  the 
Treasurer  of  the  United  States,  out  of  the  "  Guarantee  Fund," 
if  it  shall  be  sufficient,  and  if  not  sufficient,  then  out  of  any 
money  in  the  Treasury,  the  same  to  be  reimbursed  to  the  Treas- 
ury, out  of  the  "  Guarantee  Fund,"  when  replenished  either 
from  the  assets  of  the  failed  banks  or  from  the  tax  aforesaid. 

National  banking  associations,  organized  after  this  plan 
shall  have  gone  into  operation,  may  receive  circulation  from 
the  Comptroller  of  the  Currency,  upon  paying  into  the 
"  Guarantee  Fund  "  a  sum  bearing  the  ratio  to  the  circulation 


460  APPENDIX  E. 

applied  for  and  allowed,  that  the  "  Guarantee  Fund  "  bears 
to  the  total  circulation  outstanding,  and  to  be  subject  to  the 
tax  of  one-half  of  one  per  centum  per  annum,  as  called  for 
by  the  Treasurer  of  the  United  States  for  the  creation  and 
maintenance  of  this  fund. 

No  association  or  individual  shall  have  any  claim  upon 
any  part  of  the  money  in  said  "Guarantee  Fund,"  except  for 
the  redemption  of  the  circulating  rrotes  of  any  insolvent 
national  banking  association.  Any  surplus  or  residue  of  said 
"  Guarantee  Fund"  which  may  be  hereafter  ascertained  or  de- 
termined by  law,  shall  inure  to  the  benefit  of  the  United  States. 

Sec.  VII.  —  The  government  shall  have  a  prior  lien  upon 
the  assets  of  each  failed  bank  and  upon  the  liability  of 
shareholders,  for  the  purpose  of  restoring  the  amount  with- 
drawn from  the  "Guarantee  Fund"  for  the  redemption  of  its 
circulation,  not  to  exceed,  however,  the  amount  of  the  failed 
bank's  outstanding  circulation  after  deducting  the  sum  to  its 
credit  in  the  "  Redemption  Fund  "(Sec.  IV),  already  in  the 
hands  of  the  Treasurer  of  the  United  States. 

Sec.  VIII.  —  Circulation  can  be  retired  by  a  bank  at  anytime 
upon  depositing  with  the  Treasurer  of  the  United  States  lawful 
money  in  amount  equal  to  the  sum  desired  to  be  withdrawn, 
and,  immediately  upon  such  deposit,  the  tax  indicated  in  Sec- 
tions II,  III,  and  VI  shall  cease  upon  the  circulation  so  retired. 

Sec.  IX.  —  In  the  event  of  the  winding  up  of  the  business  of 
a  bank  by  reason  of  insolvency,  or  otherwise,  the  Treasurer  of 
the  United  States,  with  the  concurrence  of  the  Comptroller 
of  the  Currency,  may,  on  the  application  of  the  directors,  or 
of  the  liquidator,  receiver,  assignee,  or  other  official,  and  upon 
being  satisfied  that  proper  arrangements  have  been  made  for 
the  payment  of  the  notes  of  the  bank  and  any  tax  due  thereon, 
pay  over  to  such  directors,  liquidator,  receiver,  assignee,  or 
other  proper  official,  the  amount  at  the  credit  of  the  bank 
in  the  "  Redemption  Fund,"  indicated  in  Sec.  IV. 


APPENDIX  F. 


SECRETARY  CARLISLE'S  PLAN. 

THE  following  plan  for  amendments  of  the  National 
Banking  law  was  proposed  by  Hon.  J.  G.  Carlisle,  Secretary 
of  the  Treasury,  in  his  annual  report  for  1894 : 

I. 

Repeal  all  laws  requiring,  or  authorizing,  the  deposit  of 
United  States  bonds  as  security  for  circulation. 

II. 

Permit  national  banks  to  issue  notes  to  an  amount  not 
exceeding  seventy-five  per  centum  of  their  paid-up  and 
unimpaired  capital,  but  require  each  bank  before  receiving 
notes  to  deposit  a  guarantee  fund,  consisting  of  United 
States  legal-tender  notes,  including  Treasury  notes  of  1890, 
to  the  amount  of  thirty  per  centum  upon  the  circulating 
notes  applied  for.  This  percentage  of  deposits  upon  the 
circulating  notes  outstanding  to  be  maintained  at  all  times, 
and  whenever  a  bank  retires  its  circulation,  in  whole  or  in 
part,  its  guarantee  fund  to  be  returned  to  it  in  proportion  to 
the  amount  of  notes  retired. 

III. 

Retain  the  provision  of  the  law  making  stockholders 
individually  liable,  and  provide  that  the  circulating  notes 
shall  constitute  a  first  lien  upon  all  the  assets  of  the  bank. 


462  APPENDIX  F. 

IV. 

Impose  a  tax  of  one-half  of  one  per  centum  per  annum, 
payable  semi-annually,  upon  the  average  amount  of  notes  in 
circulation,  to  defray  the  expenses  of  printing  notes,  official 
supervision,  cancellation,  etc. 

V. 

No  national  bank  note  to  be  of  less  denomination  than 
ten  dollars,  and  all%  notes  of  the  same  denomination  to  be 
uniform  in  design  ;  but  banks  desiring  to  redeem  their  notes 
in  gold  may  have  them  made  payable  in  that  coin.  The 
Secretary  of  the  Treasury  to  have  authority  to  prepare  and 
keep  on  hand  ready  for  issue  upon  application  a  reserve  of 
blank  national  bank  notes  for  each  banking  association 
having  circulation. 

VI. 

Require  each  national  banking  association  to  redeem  its 
notes  at  its  own  office,  or  at  its  own  office  and  at  agencies  to 
be  designated  by  it. 

VII. 

To  provide  a  safety  fund  for  the  immediate  redemption  of 
the  circulating  notes  of  failed  banks,  impose  a  tax  of  per 
centum  per  annum  upon  the  average  circulation  of  each 
bank  until  the  fund  amounts  to  five  per  centum  of  the  total 
circulation  outstanding.  Require  each  new  bank,  and  each 
bank  taking  out  additional  circulation,  to  deposit  its  proper 
proportion  of  this  fund  before  receiving  notes.  When  a 
bank  fails,  its  guarantee  fund  held  on  deposit  to  be  paid 
into  the  safety  fund  and  used  in  the  redemption  of  its  notes, 
and  if  this  fund  shall  be  impaired  by  the  redemption  of  the 
notes  of  failed  national  banks,  and  the  immediately  available 
cash  assets  of  such  banks  are  insufficient  to  reestablish  the 


SECRETARY  CARLISLE'S  PLAN.  463 

fund,  it  shall  at  once  be  made  good  by  pro  rata  assessments 
upon  the  other  banks,  according  to  the  amounts  of  their 
outstanding  circulation ;  but  there  shall  be  a  first  lien  upon 
all  the  assets  of  failed  bank,  or  banks,  to  reimburse  the 
contributing  banks.  The  safety  fund  may  be  invested  in 
outstanding  United  States  bonds  having  the  longest  time  to 
run,  the  bonds  and  the  interest  upon  them  to  be  held  as  part 
of  the  fund  and  sold  when  necessary  to  redeem  notes  of 
failed  banks. 

VIII. 

Repeal  the  provisions  of  the  reorganization  and  extension 
act  of  July  12,  1882,  imposing  limitations  upon  the  reduction 
and  increase  of  national-bank  circulation. 


IX. 

Repeal  all  provisions  of  the  law  requiring  banks  to  keep 
a  reserve  on  account  of  deposits. 


X. 

The  Secretary  of  the  Treasury  may,  in  his  discretion,  use 
any  surplus  revenue  of  the  United  States  in  the  redemption 
and  retirement  of  United  States  legal-tender  notes,  but  such 
redemptions  shall  not  in  the  aggregate  exceed  an  amount 
equal  to  seventy  per  cent  of  the  additional  circulation  taken 
out  by  national  and  State  banks  under  the  system  herein 
proposed. 

XI. 

Circulating  notes  issued  by  a  banking  corporation,  duly 
organized  under  the  laws  of  any  State,  and  which  transacts 
no  other  than  a  banking  business,  shall  be  exempt  from 
taxation  under  the  laws  of  the  United  States,  when  it  is 


464  APPENDIX  F. 

shown  to  the  satisfaction  of  the  Secretary  of  the  Treasury 
and  the  Comptroller  of  the  Currency  — 

(1)  That  such  bank  has  at  no  time  had  outstanding  its 
circulating  notes  in  excess  of  seventy-five  per  centum  of  its 
paid-up  and  unimpaired  capital. 

(2)  That  its  stockholders  are  individually  liable  for  the 
redemption  of  its  circulating  notes  to  the  full  extent  of  their 
ownership  of  stock. 

(3)  That  the  circulating  notes  constitute  by  law  a  first 
lien  upon  all  the  assets  of  the  bank. 

(4)  That  the  bank  has  at  all  times  kept  a  guarantee  fund 
in  United  States  legal-tender  notes,  including  Treasury  notes 
of  1890,  equal  to  thirty  per  centum  of  its  outstanding  circu- 
lating notes  ;  and 

(5)  That  it  has  promptly  redeemed  its  notes  on  demand 
at  its  principal  office,  or  at  one  or  more  of  its  branch  cffices, 
if  it  has  branches. 

XII. 

The  Secretary  of  the  Treasury  may,  under  proper  rules 
and  regulations  to  be  established  by  him,  permit  State  banks 
to  procure  and  use,  in  the  preparation  of  their  notes,  the 
distinctive  paper  used  in  printing  United  States  securities ; 
but  no  State  bank  shall  print  or  engrave  its  notes  in  simili- 
tude of  a  United  States  note  or  certificate  or  national  bank 
note. 


APPENDIX  G. 


GOLD  VALUE  OF  GREENBACKS   DURING  THE  SUSPENSION 
OF  SPECIE  PAYMENTS. 

Highest  and  Lowest  Prices  each  year,  1862  to  1878. 

(Fractions  omitted.) 


1862 
1863 
1864 
1865 
1866 
1867 
1868 
1869 
1870 
1871 
1872 

1873 
1874 
1875 
1876 
1877 
1878 


HIGHEST. 
08 

LOWEST. 
76 

7Q 

62 

6c 

•2  C 

76 

47 

78 

6s 

76 

60 

76 

60 

84. 

6I1 

QO 

81 

y~> 
02 

87 

92 

Q2 

87 
84 

QI 

87 

8q 

8c 

Q? 

87 

•    97 

.     100 

92 
07 

1  Black  Friday. 


APPENDIX   H. 


THE  ORES  HAM  LAW. 

THE  fact  that  when  two  kinds  of  money,  differing  in  value, 
are  equally  current,  the  worse  drives  the  better  out  of  circu- 
lation, must  have  been  known  by  experience  from  the  earliest 
times.  It  was  certainly  known  to  Nicole  Oresme,  Bishop  of 
Lisieux,  France  (1364),  and  to  Copernicus  (1526),  both  of 
whom  wrote  treatises  on  money  in  which  they  pointed  out 
the  reason.  These  treatises  were  rescued  from  oblivion  in 
the  year  1 864  by  the  French  economist  Wolowski.  Oresme  was 
one  of  the  counselors  of  Charles  V.  of  France.  At  the  King's 
request  he  wrote  a  treatise  on  the  coinage,  in  which  he  laid 
down  the  following  principles,  among  others  equally  sound : 

"  That  if  the  fixed  legal  ratio  of  the  coins  differs  from  the 
natural  or  market  value  of  the  metals,  the  coin  which  is 
underrated  entirely  disappears  from  circulation,  and  the  coin 
which  is  overrated  alone  remains  current. 

"  That  if  degraded  and  debased  coin  is  allowed  to  circulate 
along  with  good  and  full-weighted  coin,  all  the  good  coin 
disappears  from  circulation,  and  the  base  coin  alone  remains 
current  to  the  ruin  of  commerce." 

The  treatise  of  Copernicus  was  written  at  the  instance  of 
Sigismund  I.,  king  of  Poland.  He  said : 

"That  it  is  impossible  for  good  full-weighted  coin  and 
base  and  degraded  coin  to  circulate  together ;  that  all  the 
good  coin  is  Hoarded,  melted  down  or  exported ;  and  the 
degraded  and  debased  coin  alone  remains  in  circulation. 


THE  GRESHAM  LAW.  467 

"That  the  coins  of  gold  and  silver  must  bear  the  same 
ratio  to  each  other  as  the  metals  do  in  the  market." 

It  had  been  supposed,  prior  to  1864,  that  Sir  Thomas 
Gresham,  who  explained  this  law  to  Queen  Elizabeth,  was 
its  first  expounder.  His  exposition  was  pointed  out  by 
Mr.  H.  D.  Macleod  in  1858,  and  hence  it  became  known 
as  the  "  Gresham  Law."  It  is  found  in  an  old  pamphlet  in 
these  words  : 

"  When  two  sorts  of  coin  are  current  in  the  same  nation, 
of  like  value  by  denomination  but  not  intrinsically,  that  which 
has  the  least  value  will  be  current  and  the  other  as  much  as 
possible  will  be  hoarded." 

Upon  this  general  principle  Professor  Jevons  makes  the 
following  observations  : l 

"  Though  the  public  generally  do  not  discriminate  between 
coins  and  coins,  provided  there  is  an  apparent  similarity,  a 
small  class  of  money-changers,  bullion-dealers,  bankers  or 
goldsmiths  make  it  their  business  to  be  acquainted  with  such 
differences,  and  know  how  to  derive  a  profit  from  them. 
These  are  the  people  who  frequently  uncoin  money,  either  by 
melting  it,  or  by  exporting  it  to  countries  where  it  is  sooner 
or  later  melted.  Some  coins  are  sunk  in  the  sea  or  lost,  and 
some  are  carried  abroad  by  emigrants  and  travelers  who  do 
not  look  closely  to  the  metallic  value  of  the  money.  But  by 
far  the  greatest  part  of  the  standard  coinage  is  removed  from 
circulation  by  people  who  know  that  they  shall  gain  by 
choosing  for  this  purpose  the  new  heavy  coins  most  recently 
issued  from  the  mint.  Hence  arises  the  practice,  extensively 
carried  on  in  the  present  day  in  England,  of  picking  and 
culling,  or,  as  another  technical  expression  is,  garbling  the 
coinage,  devoting  the  good  new  coins  to  the  melting-pot,  and 
passing  the  old  worn  coins  into  circulation  again  on  every 
suitable  opportunity. 

1  Money  and  the  Mechanism  of  Exchange,  p.  80. 


468  APPENDIX  H. 

"  From  these  considerations  we  readily  learn  the  truth  and 
importance  of  a  general  law  or  principle  concerning  the 
circulation  of  money,  which  Mr.  Macleod  has  very  appropri- 
ately named  the  Law  or  Theorem  of  Gresham,  after  Sir 
Thomas  Gresham,  who  clearly  perceived  its  truth  three 
centuries  ago.  This  law,  briefly  expressed,  is  that  bad  money 
drives  out  good  money,  but  that  good  money  cannot  drive  out 
bad  money.  At  first  sight  there  may  seem  to  be  something 
paradoxical  in  the  fact,  that  when  beautiful  new  coins  of  full 
weight  are  issued  from  the  mint,  the  people  still  continue  to 
circulate,  in  preference,  the  old  depreciated  ones.  Many 
well-intentioned  efforts  to  reform  a  currency  have  thus  been 
frustrated,  to  the  great  cost  of  states,  and  the  perplexity  of 
statesmen  who  had  not  studied  the  principles  of  monetary 
science. 

"  In  all  other  matters  everybody  is  led  by  self-interest  to 
choose  the  better  and  reject  the  worse  ;  but  in  the  case  of 
money,  it  would  seem  as  if  they  paradoxically  retain  the 
worse  and  get  rid  of  the  better.  The  explanation  is  very 
simple.  The  people,  as  a  general  rule,  do  not  reject  the 
better,  but  pass  from  hand  to  hand  indifferently  the  heavy 
and  the  light  coins,  because  their  only  use  for  the  coin  is  as 
a  medium  of  exchange.  It  is  those  who  are  going  to  melt, 
export,  hoard,  or  dissolve  the  coins  of  the  realm,  or  convert 
them  into  jewelry  and  gold  leaf,  who  carefully  select  for  their 
purposes  the  new  heavy  coins 

"  Gresham's  remarks  concerning  the  inability  of  good 
money  to  drive  out  bad  money,  only  referred  to  moneys  of 
one  kind  of  metal,  but  the  same  principle  applies  to  the 
relations  of  all  kinds  of  money,  in  the  same  circulation. 
Gold  compared  with  silver,  or  silver  with  copper,  or  paper 
compared  with  gold,  are  subject  to  the  same  law  that  the 
relatively  cheaper  medium  of  exchange  will  be  retained  in 
circulation  and  the  relatively  dearer  will  disappear." 


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DAVIS 


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INDEX. 


A. 


Acceptances,  429. 

Accommodation  Paper,  431. 

Adams,  John  Quincy,  296. 

Adams,  Samuel,  Sr.,  254. 

Aldrich,  Nelson,  W.,  206. 

AUsana  Bank,  403. 

Allard,  M.,  78,  83,  84,  101,  103. 

Allison,  Wm.  B.,  78,  85,  88,  94,  97, 
102,  105,  200,  206. 

Alvensleben,  Count,  80,  105. 

American  Exchange  Bank  (Illi- 
nois), 403. 


Andrews,  E.  Benjamin,  90. 

Anne,  Proclamation  of,  16. 

Anti-Bubble  Act,  255,  257. 

Aristotle,  24,  25. 

Assistant  Treasurer  of  the  U.  S., 
239,  242. 

Atkinson,  Edward,  106. 

Atlanta  Bank,  404. 

Austria-Hungary,  Monetary  Legis- 
lation of,  68,  69. 

Ayr  Bank,  434. 


B. 


Baltimore  Plan,  436-440,  443. 

Bamberger,  Dr.  Ludwig,  58,  59. 

Bancroft,  George,  125,  148,  234. 

Bank,  of  North  America,  238,  396, 
397;  of  Massachusetts,  238,  31 3; 
of  New  York,  238,  334-336;  of 
South  Royalston,  Vt,  330;  of 
Mutual  Redemption,  333  ;  of  the 
United  States,  First,  258-270;  of 
the  United  States,  Second,  271- 
313;  of  England,  258,  415,  416, 
433 » °f tne  Manhattan  Company, 
336;  of  America,  338,405 ;  of  To- 
nawanda,35o;  of  Eau  Claire,  3 59; 


of  Cape  Fear,  366;  of  Newbern, 
366 ;  of  Darien,  367  ;  of  Ken- 
sington, 371  ;  of  Lapeer,  371  ; 
of  Sandstone,  372  ;  of  the  State 
of  South  Carolina,  374-379 ;  of 
the  State  of  Indiana,  385  ;  of 
Delaware,  398  ;  of  Kentucky, 
399  ;  of  Mobile,  402  ;  of  Chester, 
403;  of  Elgin,  403  ;  of  Montreal, 
409,  441. 

Banks,  Functions  of,  235-238  ; 
Circulating  Notes  of,  237,  238, 
421  ;  Not  "  Bills  of  Credit,"  378 ; 
Checks,  237,  238;  Reserves,  244, 


480 


INDEX. 


332,  411;  Reports,  413;  State- 
ments, 427, 428 ;  How  Banks  aid 
in  the  work  of  Production,  434; 
Branches,  441. 

Banking,  Science  of,  244  ;  Colonial, 
248-258  ;  Eccentricities  of,  361- 
374  ;  In  the  Fifties,  397-406. 

"Banking  Principle,"  331. 

Bank  -vs.  Supervisors,  Decision 
of  the  Supreme  Court,  194. 

Baring,  House  of,  299. 

Barbour,  Sir  D.,  72. 

Bayard,  Thos.  F.,  198. 

Beaver  Skins,  13. 

Beck,  James  B.,  194. 

Belcher,  Jonathan,  254-256. 

Bellomont,  Earl  of,  1 5. 

Belvidere  Bank,  403. 

Bengesco,  M.,  101. 

Benton,  Thos.  H.,  51,  296,  308,  309. 

Beranger,  M.,  61, 

Bicknall's    Counterfeit    Detector, 

403- 

Biddle,  Nicholas,  287,  292-295. 
Bills  of  Credit,  Colonial,  120-134; 

Private,  251. 
Bills  of  Exchange,  429,  430. 


Bills  of  Lading,  431. 

Binney,  Horace,  307. 

"Black  Friday,"  185,  186. 

Bland  Bill,  200,  201. 

Boissevain,  M.,  93. 

Bond  Syndicate,  211,  212,  229. 

Boston  Bank,  317,  318. 

Boutwell,  Geo.  S.,  53,  217. 

Bowen,  Prof.  Francis,  63. 

Briscoe  vs.  the  Bank  of  the  Com- 
monwealth of  Kentucky,  Deci- 
sion of  the  Supreme  Court,  378. 

Bronson,  Dr.  Henry,  14,  126,  128. 

Bronson  vs.  Rodes,  Decision  of 
the  Supreme  Court,  231. 

Brownsville  Bank  and  Land  Com- 
pany, 402. 

Brussels  Monetary  Conference, 
76-105. 

Bryant,  Wm.  C,  347. 

Bullion  Report,  120. 

Burglary  Legalized,  137. 

Burr,  Aaron,  336. 

Butler,  B.  F.,  193. 

Butler  vs.  Horwitz,  Decision  of 
the  Supreme  Court,  231. 


C. 


Cadwalader,  General,  299. 
California,  Early  Money  of,    22 ; 

Gold    Standard   of,   during  the 

War,  187-190. 

Calhoun,  John  C.,  277,  278,  308. 
Calonne,  M.,  61. 
Canadian    Banks,    345,    360,  435, 

440-442. 

Cannon,  Henry  W.,  87,  97. 
"  Cape  Marchant,"  4. 
Carlisle,  John  G.,  207. 


Charles  I.,  46. 

Chase,  Salmon  P.,  149,  151,  154- 
157,  160-165,  192,  232,  233,  408. 

Chemical  Bank,  338,  385. 

Chemung  Canal  Bank,  400. 

Chevalier,  Michel,  63,  65. 

Cheves,  Langdon,  276,  281. 

Chicago,  404  ;  Bank,  404  ;  Demo- 
crat, 355,  405. 

Circulating  Notes,  237,  238,  378, 
421. 


INDEX. 


481 


City  Bank,  404. 

City  of  Glasgow  Bank,  434. 

Clearing  House,  System,  239-248 ; 
Loan  Certificates,  244-248 ;  Cur- 
rency, 443. 

Clay,  Henry,  268,  269,   293,  294, 

298»  3°7>  3°8- 
Clayton,  A.  S.,  296. 
Cleveland,  Grover,  208,  212,  223. 
Clinton  Bank,  400. 
Clinton,  George,  269. 
Coe,  Geo.  S.,  152. 
Coinage,  29-37  ;  Act  of  1873,  54> 

213-223. 

Coin  Purchase  Act,  156. 
C olden,  Cadwalader,  130. 
Collamer,  Jacob,  154. 
Colonial  Paper  Money,  120-134; 

Banking,  248-258. 
Columbian  Bank,  317. 
Commercial  Bank,  403. 
Compound  Interest  Notes,  158. 


Comptroller  of  the  Currency,  409, 

439- 

Conference,    International   Mone- 
tary, 76-105. 

Confederate    Currency,    166-174; 
Cotton  Loan,  169. 

Connecticut,  Bills  of  Credit,  126,       ^ 
129;  Law  against  withholding, 

T37- 

Continental  Currency,  134-148. 
Conway  Bank,  402. 
Copernicus,  466. 
Cost  of  the  War,   162  ;    of  Silver 

Legislation,  204,  note. 
Counterfeiting,  Bills  of  Credit,  127, 

128  ;  Continental  Currency,  142; 

Bank  Notes,  397-399. 
Courtney,  L.  H.,  73. 
Cramer-Frey,  M.,  89. 
Crawford,  W.  H.,  267. 
Currie,  B.  W.,  73,  84,  104. 
"  Currency  Principle,"  331,  433. 


D. 


Dallas,  G.  M.,  272, 273, 277, 293-295. 

Debtor  Class,  29,  108,  124,  283. 

Debt-paying  Policy,  National,  417. 

Delbriick,  Herr,  57. 

Deposits,  236  ;  Public,  279  ;  Re- 
moval of,  301-307  ;  Interest  on, 
428. 

Depreciation,  of  Colonial  Bills  of 
Credit,  129,  132  ;  of  Continental 
Currency,  135,  141,  144 ;  of 
Greenbacks,  1 57 ;  of  Confederate 
Currency,  168,  173  ;  of  Silver, 
204,  note. 


Desha,  Joseph,  265. 

Dickins,  Asbury,  298. 

Discounts,  236. 

Dollar,  Spanish,  14, 16, 41 ;  "Lyon," 

21  ;  Silver,  198-212  ;  Trade,  223. 
Douglass,  Dr.  Wm.,  124,  128,  256. 
Drafts  and  Bills  of  Exchange,  429. 
Duane,  Wm.,  262. 
Duarie,  Wm.  J.,  296,  301-306,  365. 
Dudley,  Paul,  250. 
Dunbar,  Prof.  Chas.  F.,  258,  425, 

426,  443,  444- 


482 


INDEX. 


E. 


Eccentricities  of  Banking,  361-374. 
Eckels,  James  H.,  437,  438. 
England,  Gold  Standard  of,  45-50; 

Bank  of,  258,  415,  416,  433. 
Erlanger  &  Co.,  168,  169. 


Exchange,  Mechanism  of,  427-436; 

Bills  of,  429,  430. 
Exchange  Bank,  371. 
Expunging  Resolution,  308-310. 


F. 


Fall  of  Prices,  108. 

Falkner,  Prof.  R.  P.,  163,  421. 

Farmer's  Bank,  571,  399,  401,  403. 

Farmer's  and  Mechanic's  Bank,  400. 

Farmer's  and  Trader's  Bank,  403. 

Farnam,  Prof.  H.  W.,  in. 

Farrer,  Lord,  73. 

Felch,  Alpheus,  371,  372. 

Felt,  Joseph  B.,  121,  122. 

Fessenden,  W.  P.,  160,  163. 

Fiat  Money,  117,  224,  225. 

Fillmore,  Millard,  344. 

First  National  Bank  of  Chicago, 

436,  note. 
Five-Franc  Pieces,  36. 


Flagg,  Azariah  C.,  351. 

Forcing  Laws,  127. 

Foreign  Coins  Legal  Tender  in  the 

United  States,  37. 
Forman,  Joshua,  339-341. 
Forssell,  M.,  93,  94,  99-101. 
Foville,  M.  de,  103. 
France,  Monetary  Legislation  of, 

61-67  ;  Bank  of,  96. 
Franklin,  Benjamin,  134,  145,  147  ; 
Franklin  Bank,  317. 
Free  Bank  System,  348-361. 
Fremantle,  Sir  Charles,  82,  87. 
French  Draft,  300,  303. 


G. 


Gallatin,  Albert,  149,  261,  262-266, 
269,  270. 

Gallatin,  James,  150,  153. 

General  Banking  Law  of  Massa- 
chusetts, 321-324. 

Georgia,  Anti-Bank  War  in,  285, 
286;  Bank  Notes  of,  in  the 
Northwest,  404. 

Germany,  Monetary  Legislation  of, 
55-61 ;  Recent  Bimetallist  Move- 
ments in,  447. 

Gibbes,  James  C.,  169. 

Giffen,  Robert,  63. 


Gold,  in  the  Homeric  Period,  24 ; 
not  free  from  Variations,  28  ; 
Gold  Standard,  44 ;  Physical 
Reason  for,  105  ;  Beneficial  to 
Mankind,  109  ;  Bill  of  1834,  51, 
52  ;  Alleged  Scramble  for,  112  ; 
Recent  Production  of,  113; 
Anti-Gold  Law  of  1864,  160  ; 
Repealed,  162  ;  Gold  Room  in 
New  York,  174-186;  Gold  Ex- 
change Bank,  175  ;  Exports,  205, 
207,  430  ;  $100,000,000  Reserve, 
206. 


INDEX. 


483 


Gore  Bank,  383. 
Gouge,  Wm.  M.,  361-365. 
Gould,  Jay,  184. 
Government  as  a  Bank,  226. 
Graf  ton,  Duke  of,  256. 
Gray,  Horace,  234. 


Hall,  Boiling,  149,  276. 
Hamilton,  Alexander,  40,  144,  259, 

334-336. 
Hammond,   Jabez   D.,   334,    338, 

339>  34i,  347- 

Hamerton,  Philip  Gilbert,  191. 
Hampden  Bank,  403. 
Hardy,  Miss  S.  McLean,  422,  423. 
Hartung,  Herr,  78. 
Hepburn,  A.  B.,  204,  note,   434, 

437»  438- 

Hepburn    vs.  .  Griswold,  Decision 
of  the  Supreme  Court,  165,  231. 


Gray,  Wm.,  318. 
Grant,  U.  S.,  195. 
Greenbacks,  148-165,  197,  198. 
Gresham,  Law  of,  325,  466. 
Grosvenor,  Thos.  P.,  271. 
Guinea,  in  English  Coinage,  47. 


33/-3S 


Herschell,  Lord,  73. 

Hill,  Isaac,  288-291. 

Hoar,  Geo.  F.,  221. 

Holland,  Monetary  Legislation  of, 

67,  68. 

Homeric  Poems,  24. 
Hong  Merchants,  340. 
Hooper,  Samuel,  152,  214,  220,  408. 
Hottinguer  &  Co.,  300. 
Houldsworth,  Sir  W.,  86. 
Hutchinson,  Thomas,  1  25,  2  50,  251  , 

255,  256. 


Illinois,  Free  Banks  of,  354-357, 
403 ;  State  Banks  of,  404 ;  River 
Bank,  404. 

Impressments,  143,  144. 

India,  Monetary  Legislation  of, 
69-75,  208. 


Indiana,  Free  Banks  of,  357,  358 ; 

State  Bank  of,  379-386. 
Ingalls,  John  J.,  206. 
Ingersoll,  C.  J.,  287,  293,  295,  312. 
Ingham,  S.  D.,  291-293. 
International  Bank,  404. 


Jackson,  Andrew,  281,  282,  287, 

292-313. 

Jackson  County  Bank,  372. 
James  I.,  5,  46. 
Jay,  John,  337. 
Jefferson,  Thomas,   41,   261,  262, 

265. 


Jevons,    Prof.    W.    Stanley,    25, 

467. 

Jones,  John  P.,  101. 
Jordan,  C.  N.,  207. 
Journalistic  Fury,  266. 
Juillard    vs.    Greenman,  Decision 

of  the  Supreme  Court,  233. 


484 


INDEX. 


Kelley,  Wm.  D.,  216,  222. 
Kendall,  Amos,  290,  297,  301-303, 

3°5>  306. 

Kentucky  Relief,  283. 
Khevenhiiller-Metsch,  Count,  80. 
King,  Wm.  R.,  309. 


"Kitchen  Cabinet,"  291,  292,  296, 

301,  302,  312. 
Knox,  John  J.,  53,  311,  342,  379, 

408. 

Knower,  Benjamin,  341. 
Koshkonong  Bank,  359. 


L. 


Land  Bank,  of  1714,  248;  of  1741, 
252-258. 

Lane  County  vs.  Oregon,  Decision 
of  the  Supreme  Court,  231. 

Latin  Monetary  Union,  65. 

Laughlin,  Prof.  J.  L.,  216. 

Legal  Tender,  of  Tobacco,  6,  9 ;  of 
Foreign  Coins,  37;  in  General, 
38-43  ;  Roman  Law  of,  38 ;  Co- 
lonial, 38 ;  Present  Varieties  of  ,39; 
first  under  the  Constitution,  40  ; 
Change  in  1834  and  1837,  41 ; 
adds  nothing  to  the  Value  of 
Gold,  42  ;  Decision  of  Law  Offi- 
cers in  1769,  130;  of  Continental 
Currency,  134  ;  Bill  of  1862, 152; 
Passed,  1 54  ;  Interest-bearing 
Notes,  1 58 ;  Act  not  necessary, 
161 ;  Decisions  of  the  Supreme 
Court  on,  165,  231-234. 

Legal  Reserve,  411. 


Leggett,  Wm.,  347. 

Leib,  Michael,  262.     ^ 

Letters  of  Credit,  430. 

Levasseur,  Prof.,  65. 

Levi,  Montefiore,  78. 

Levy,  Moritz,  78. 

Liability  of  Shareholders,  383,  410. 

Lincoln,  Levi,  319. 

Linderman,  Dr.  H.  S.,  53. 

Livingston,  Edward,  293. 

Lloyd,  James,  268. 

Loan  Bills  of  Colonial  Legislatures, 

125,  131. 

Locke,  John,  32,  49. 
Locofocos,  The,  346-348,  352. 
Lords   of   Trade,    Orders   against 

Colonial  Paper  Money,  121,  127. 
Lotz,  Prof.,  55,  58,  59. 
Louisiana,  Bank  Actof  1842,  394, 

396. 


M. 


McCulloch,  Hugh,  160,  357,  381- 

385>  395'  4o8. 
McCreary,  James  B.,  85. 
McDuffie,  George,  292,  296,  307. 
McLane,  Louis,  293,  299,  300. 
Macleod,  H.  D.,  235,  236,  431,  432. 
McMaster,  Prof.  J.  B.,  284. 


McVickar,  Prof.  John,  348. 
Macomb  County  Bank,  401,  404. 
Madison,  James,  262,  271,  276,  279. 
Mann,  Abijah,  349. 
Manufacturers'  Bank,  401. 
Market  Bank,  400. 
Martha's  Vineyard  Bank,  400. 


INDEX. 


485 


Mason,  Jeremiah,  288,  289,  291. 

Massachusetts  Commodity  Money, 
12;  Mint,  14;  Bills  of  Credit, 
120,  123,  128,  129  ;  Banking 
Development,  313-324. 

Massasoit  Bank,  399. 

Maverick  Bank,  401. 

Memminger,  C.  G.,  166-172. 

Merchants'  Bank,  337. 

Merrill,  Samuel,  383. 

Merrimac  Bank,  316. 

Michigan  Wild  Cats,  370-373. 

Miery  Celis,  M.,  81. 

Mirabeau,  Count,  32. 


Mitchell,  Alexander,  360,  388,  390, 

404. 

Mob  Law,  130,  137,  404. 
Moffat  &  Co.,  23. 
Molesworth,  Sir  G.,  88. 
Money  of  Account,  14. 
Monroe  Bank,  399. 
Monroe's  Descriptive  List,  402. 
Morrison,  James,  383. 
Morgan  County  Bank,  403. 
Mortgage  Security,  354,  409. 
Moses,  Prof.  Bernard,  187,  189. 
Mutiny  against  Continental  Money, 

141. 


N. 


National    Banking   System,    406- 

419. 

National  Bank,  400. 
Newcomb,  Prof.  Simon,  193. 
New  England  Bank,  317,  321,  322, 

325- 
New  Hampshire,  Bills  of  Credit, 

122. 

New  Jersey,  Bills  of  Credit,  122. 
Newmarch,  Wm.,  314. 
New  Orleans  Banks,  395,  396. 


New  York,  Early  Money  of,  17  ; 
First  Double  Standard,  18;  Bills 
of  Credit,  127,  129;  Clearing 
House,  239  ;  Banking  Develop- 
ment, 333-339- 

Nicholas,  Bank  Note  Reporter  of, 
398-402. 

Nicolls,  Colonel,  19. 

North  Bank,  400. 

North  Carolina,  Bills  of  Credit, 
129;  Banks,  366-368. 


0. 


Ohio,  Frenzy,  284  ;  Life  and  Trust 
Co.,  385;  State  Bank  of,  386,  387. 
Olcott,  Thos.  W.,  341. 
Oneida  County  Bank,  400. 
Orange  Bank,  399. 
Oresme,  Nicole,  466. 


Origin  of  Money,  25. 

Oriental  Bank,  400. 

Osma,  M.  de,  102. 

Oswego    and    State    Line    Plank 

Road  Company,  404. 
Ourousoff,  Prince,  80. 


Paine,  Thomas,  125. 
Panic  of  1893,  207  ;  of  1895,  2II» 
212,  228  ;  of  1873,  247  j  of  1837, 


330  ;  of  1857,  356,  385  ;  of  1861, 

356. 
Parieu,  M.  de,  66. 


486 


INDEX. 


Parity  Clause  of  the  Sherman  Act, 

203,  225. 
Parliament,   enacts    Law    against 

Bills  of  Credit  in  New  England, 

122;  in   other   Colonies,    123; 

extends  Anti-Bubble  Act  to  the 

Colonies,  255. 
Party  Rage,  265. 
Pendleton,  Geo.  H.,  193,  194. 
Penn,  Wm.,  15. 
Pennsylvania  Banks  in  1820,  363, 

366. 

People's  Bank,  399. 
Per  Capita  System,  227. 


Pieces-of -Eight,  14,  15;  Pillar,  16; 

Mexico,  1 6. 

Pine  Tree  Shilling,  14,  21. 
Planter's  Bank,  287,  400. 
Politics  in  Bank  Charters,  318,  333, 

346. 

Pollard,  E.  A.,  173. 
Pollock,  James,  53. 
Portland  Bank,  317. 
Post  Notes,  368. 
Potter,  Clarkson  N.,  216. 
Price  Conventions,  136,  137,  140. 
Private  Coins,  23,  43. 
Proclamation,  Money,  16;  Act,  129. 


Q- 


Qualities  of  Good  Money,  26. 


Quantity  Theory,  419-426. 


R. 


Raffalovich,  M.,  88,  89. 

Raguet,  Condy,  32,   50,  362-365, 

369- 

Railroad  Bank,  400,  403. 
Ramsay,  Dr.  David,  148. 
Randolph,  John,  278. 
Receiverships  of  Insolvent  Banks, 

414,  415. 
Redemption    of    National    Bank 

Notes,  412,  413. 
Representative  Government,  First 

in  America,  4,  note. 
Representative  Money,  117. 


Reserves  of  Banks,  244,  332,  411. 

Rhode  Island,  Bills  of  Credit,  123- 

125,  128,  129;  Repudiation  in, 

I3I- 

Ricardo,  David,  30. 
RiceCurrencyin  South  Carolina,  22. 
Richardson,  Wm.  A.,  195,  note. 
Riots,  9,  255,  360,  361. 
Rock  Island  .Bank,  403. 
Root,  L.  Carroll,  342-344,  352>  353- 
Roscher,  Prof.,  23. 
Rothschild,    Alfred    de,    79,    86; 
House  of,  196. 


S. 


Sackett's  Harbor  Bank,  401. 
S*fety  Fund  System,  339-348. 
Sainctelette,  M.,  86,  87,  93,  95. 
Say,  Leon,  66, 
Schlick,  Count  of,  30. 
Schurz,  Carl,  195. 


Scotch  Banks,  432-434. 
Scrope,  G.  Poulett,  348. 
Seigniorage,  201. 
Senate  censures  President  Jackson, 

308. 
Seton,  Wm.,  336. 


INDEX. 


487 


Seyd,  Ernest,  220,  221. 

Sherman,  John,  196,  408. 

Sherman  Act,  202,  204,  205 ;  Re- 
pealed, 208. 

Shinplasters,  369. 

Shirley,  Governor,  256. 

Silver,  20;  Demonetized  by  Eng- 
land, 48  ;  by  the  United  States, 
53 ;  by  Germany,  57  ;  by  France 
and  the  Latin  Union,  66 ;  by 
Holland,  68;  by  Austria-Hun- 
gary, 68  ;  by  British  India,  75; 
Legislation  in  the  United  States, 
198-212. 

Simonelli,  M.,  93. 

Smith,  Adam,  33. 

Smith,  George,  387-394,  404,  405. 

Soetbeer,  Adolf,  56,  78. 

South  Carolina,  Early  Money  of, 
21;  Bills  of  Credit,  121,  125, 
129;  Bank  of  the  State  of,  374- 

379- 

Southern  Bank,  402. 

Southwestern  Bank,  401. 

Southwestern  Plank  Road  Com- 
pany, 404. 


Spaulding,  Elbridge  G.,  152-163, 
408. 

Specie,  3 ;  Payments  Suspended, 
150,  272  ;  Resumption  Act,  196. 

Specific  Contract  Law  in  the  Col- 
ony of  New  York,  19;  in  Cali- 
fornia, 190. 

Specific  Supplies,  142,  143. 

Spencer,  Ambrose,  337. 

State  Bank,  of  Boston,  317-321, 
383;  of  North  Carolina,  366, 
368  ;  of  Indiana,  379-386 ;  of 
Ohio,  386,  387. 

Stewart,  W.  M.,  222. 

Stevens,  Thaddeus,  152,  155,  156. 

Story,  Joseph,  147,  378. 

Stoughton,  W.  L.,  214,  215. 

Strong,  Wm.  M.,  232,  233. 

Strachey,  Lieut.  Gen.  R.,  73,  83, 
104.- 

Stuyvesant,  Peter,  19. 

Subsidiary  Coinage,  35. 

Suffolk  Bank  System,  324-333,440, 

Sumner,  Prof.  W.  G.,  135, 136, 144. 

Supreme  Court,  Decisions  of,  165, 
194,  231,  233,  300,  378. 


T. 


Talleyrand,  Ch.  Maurice  de,  336. 
Tammany  Hall,  185,  346. 
Taney,  Roger  B.,  293,  306,  307. 
Taussig,  Prof.  F.  W.,  59,  163,  164. 
Tax  on  Notes  of  State  Banks,  442, 

443- 
Tenor,  Old,  Middle,  New,  of  Bills 

of  Credit,  1 28  ;  of  Continental 

Currency,  141  ;  of  Confederate 

Currency,  170,  171. 
Thalers,  30,  36,  58. 
Thames  Bank,  402. 


Three  per  Cents  (in  the  Bank  War), 

298,  303. 

Thompson,  John,  355. 
Thompson's  Bank  Note  Reporter, 

37,  399- 

Tietgen,  M.,  102. 

Tioga  County  Bank,  401. 

Tirard,  M.,  79,  94-98. 

Tobacco,  Money  in  Virginia,  4-10; 
High  Price  in  1619,  5  ;  Legal 
Tender  of,  6;  Rapid  Decline, 
7  ;  Primitive  Transportation,  7, 


488 


INDEX. 


note ;  Great  Depreciation,  8 ; 
Planting  Stopped  One  Year,  9; 
Riots,  9;  Paper  Currency,  10; 
Ruinous  Fluctuations,  10;  in 
Maryland,  n. 


Tompkins,  Daniel  D.,  335,  336. 

Trade  Dollar,  223. 

Treasury  Notes  of  1890,  202;  of 

1815,368. 
Treasury  Deficit,  209,  227. 


U. 


Union  Bank,  315,  400. 

United  States,  First  Bank  of,  258- 


Second    Bank    of,    271- 


V. 


Van  Buren,  Martin,  339. 
Van  den  Berg,  M.,  81,  86,  89. 
Veazie  Bank  of  Bangor,  328. 

Wages  and  Prices  During  the  War, 

163,  164. 

Walker,  Amasa,  424. 
Walker,  B.  E.,  441. 
Walker,  Francis  A.,  in,  420-422. 
Wampum,  13. 
Warwick  Bank,  402. 
Washington,  George,  138, 139, 141, 

261. 

Wayne  County  Bank,  371. 
Webster,    Daniel,    273-276,    297, 

307-309. 

Webster,  Pelatiah,  135,  138,  139. 
Weber,  M.,  91,  92. 
Weight  Coins,  30. 


Village  Bank,  400. 

Virginia,  Tobacco  Money  in,  4-10. 


W. 


Welby,  Sir  R.  E.,  73. 

Wells,  David  A.,  no. 

Wentworth,  John,  356. 

Western  Bank  of  Scotland,  434. 

White,  Campbell  P.,  51,  52. 

Whitney,  D.  R.,  328-330. 

Whitney,  Reuben  M.,  296, 302, 303. 

Wilson,  Sir  Rivers,  85,  98. 

Wild  Cat  Banks,  370. 

Wisconsin,  Free  Banks  of,  359, 
360;  Marine  and  Fire  Insurance 
Company,  360,  388-393,  404. 

Woodbury,  Levi,  291,  293. 

Wright,  Carroll  D.,  163. 

Wright,  Silas,  308. 


Y. 


Yeardley,  Governor,  4,  5. 


I   York  Shilling,  15. 


Z. 

Zeppa,  M.,  91. 


ADVERTISEMENTS 


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Its  practical  tendency  is  shown  by  the  following  partial  list  of 
subjects  discussed  during  the  past  eight  years  :  — 

Taxation,  the  Customs  Tariff,  the  National  Banks,  Silver  Coin- 
age, the  Labor  Question,  the  Railroad  Question,  the  Land  Question 
and  the  Mortgage  Question,  Civil  Service  Reform,  Municipal  Gov- 
ernment, the  Machinery  of  Nominations  and  Elections,  the  Census, 
Immigration,  Trusts,  Governmental  Control  of  Industry,  and 
Socialism. 


E.  L.  Godkin,  Editor  of  New  York 
Evening  Post  and  Nation :  I  know 
of  no  periodical  of  its  kind  which 
maintains  a  higher  standard  of  excel- 
lence. The  longer  articles  are  gen- 
erally models  of  clear  and  adequate 
discussion  such  as  only  thoroughly 


competent  hands  can  produce.  But 
the  feature  which  I  think  most 
distinctly  meritorious  is  the  book 
reviews.  Their  thoroughness  and 
impartiality  and  independence  are 
excellent  signs  of  the  times. 


The  Philosophy  of  Wealth. 


Economic  Principles  Newly  Formulated.  By  JOHN  B.  CLARK,  A.M., 
Professor  of  History  and  Political  Science  in  Smith  College ;  Lecturer 
on  Political  Economy  in  Amherst  College.  12mo.  Cloth,  xiii  +  235 
pages.  Mailing  price,  $1.10;  for  introduction,  $1.00. 


work  is  a  re-statement  of  economic  principles  in  harmony 
with  the  modern  spirit.     It  aims  to  secure  a  truer  conception 
of  wealth,  labor,  and  value,  and  of  the  process  of  distribution,  and 
takes  into  account  the  action  of  moral  forces  and  the  organic 
nature  of  society. 


New  York  Tribune :  No  book  is 
remembered  in  which  these  vital 
questions  have  been  treated  in  a 


more  elevated  and  noble  tone,  or 
with  more  of  searching  and  original 
thought. 


GENERAL  LIBRARY 
UNIVERSITY  OF  CALIFORNIA— BERKELEY 

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